Knowledge

Standardized approach (counterparty credit risk)

Source 📝

581: 399:
The framework replaced both non-internal model approaches: the Current Exposure Method (CEM) and the Standardised Method (SM). It is intended to be a "risk-sensitive methodology", i.e. conscious of
467:
assumptions, thereby reducing net exposure; these are in turn aggregated to counterparty "netting sets"; this aggregated amount is then offset by the counterparty's collateral (i.e.
183: 393: 348: 88: 616: 266: 232: 83: 48: 1063: 227: 178: 28: 931: 504: 1289: 1210: 1013: 341: 324: 271: 1284: 609: 896: 788: 239: 960: 1048: 629: 452: 906: 871: 516: 381: 364: 334: 261: 215: 78: 73: 876: 1215: 936: 921: 863: 602: 911: 480: 151: 1253: 1155: 1128: 1113: 881: 736: 657: 412: 1279: 1258: 1190: 1180: 1135: 1068: 901: 652: 445: 423: 1248: 1205: 716: 488: 471:), which is subject to a "multiplier" that limits its benefit, applying a 5% floor to the exposure. 419: 373: 200: 146: 503:(or even asset classes) is challenging; thus making it difficult to fairly calculate each desk's 1225: 1220: 1200: 1088: 891: 849: 746: 672: 484: 476: 385: 436:
RC is the "Replacement Cost" were the counterparty to default today: the current exposure, i.e.
594: 1103: 1093: 1083: 1038: 1033: 987: 983: 956: 886: 803: 677: 667: 441: 1140: 1058: 1008: 991: 916: 780: 765: 408: 289: 256: 432:. Here, α is a "multiplier" of 1.4, acting as a buffer to ensure sufficient coverage; and: 1175: 1150: 1108: 1098: 1073: 1053: 1043: 756: 720: 662: 404: 130: 117: 112: 1123: 979: 975: 966: 834: 813: 761: 751: 741: 731: 700: 682: 625: 554:"The standardised approach for measuring counterparty credit risk exposures (BCBS 279)" 468: 437: 294: 188: 166: 161: 17: 463:
are aggregated to "hedging sets", with positions allowed to offset based on specified
1273: 1230: 1118: 1028: 1018: 971: 951: 844: 793: 577: 536: 53: 1185: 1170: 946: 808: 769: 500: 193: 121: 1235: 1195: 941: 926: 839: 726: 704: 692: 644: 464: 456: 400: 315: 222: 173: 818: 798: 712: 708: 426:
and "long-settlement transactions" exposed to counterparty credit risk, where
299: 1165: 512: 460: 389: 377: 156: 68: 415:; considerations insufficiently addressed under the preceding frameworks. 1023: 63: 1078: 553: 440:
of all trades, is aggregated by counterparty, and then netted-off with
108: 58: 1145: 499:. Because of its two-step aggregation, capital allocation between 1160: 126: 598: 496: 249: 244: 537:"Counterparty credit risk in Basel III - Executive Summary" 479:
calculation where it is combined with the counterparty's
511:
is also input to other regulatory results such as the
552:
Basel Committee on Banking Supervision (2014-03-31).
1001: 862: 827: 779: 691: 643: 636: 535:Basel Committee on Banking Supervision (2018). 610: 342: 8: 40:International regulatory standards for banks 640: 617: 603: 595: 507:. Various methods are then proposed here. 349: 335: 33: 475:The SA-CCR EAD is an input to the bank's 394:Basel III: Finalising post-crisis reforms 528: 411:and non-margined trades and recognizes 307: 281: 138: 100: 36: 49:Basel Committee on Banking Supervision 7: 29:Standardized approach (credit risk) 388:trades. It was published by the 25: 892:Conditional Value-at-Risk (CVaR) 505:risk-adjusted return on capital 1211:Strategic financial management 1014:Asset and liability management 491:; Some banks thus incorporate 407:, that differentiates between 1: 325:Business and Economics Portal 282:Pillar 2: Supervisory review 139:Pillar 1: Regulatory capital 789:Operational risk management 453:"Potential Future Exposure" 308:Pillar 3: Market disclosure 1306: 961:Proportional hazards model 912:Interest rate immunization 582:"Allocating SA-CCR fairly" 363:standardized approach for 26: 1244: 630:financial risk management 455:to the counterparty: per 907:First-hitting-time model 872:Arbitrage pricing theory 517:net stable funding ratio 365:counterparty credit risk 27:Not to be confused with 1216:Stress test (financial) 922:Modern portfolio theory 18:Current exposure method 418:SA-CCR calculates the 1290:Derivatives (finance) 1254:Investment management 1156:Investment management 882:Replicating portfolio 658:Sovereign credit risk 1259:Mathematical finance 1191:Risk-return spectrum 1181:Mathematical finance 1136:Fundamental analysis 1069:Exchange traded fund 653:Consumer credit risk 429:EAD = α × (RC + PFE) 1285:Capital requirement 1249:Financial economics 1206:Statistical finance 972:Value-at-Risk (VaR) 877:Black–Scholes model 717:Holding period risk 420:exposure at default 392:in March 2014. See 374:capital requirement 147:Capital requirement 1226:Structured product 1221:Structured finance 1201:Speculative attack 887:Cash flow matching 850:Non-financial risk 747:Interest rate risk 673:Concentration risk 477:regulatory capital 1267: 1266: 1039:Corporate finance 1034:Capital structure 988:Cash flow at risk 984:Liquidity at risk 957:Survival analysis 858: 857: 804:Reputational risk 678:Credit derivative 586:www.fisglobal.com 382:counterparty risk 359: 358: 41: 16:(Redirected from 1297: 1141:Growth investing 1059:Enterprise value 1009:Asset allocation 992:Earnings at risk 974:and extensions ( 917:Market portfolio 781:Operational risk 766:Refinancing risk 641: 619: 612: 605: 596: 589: 575: 569: 568: 566: 564: 549: 543: 533: 510: 497:KVA calculations 494: 431: 413:netting benefits 376:framework under 351: 344: 337: 290:Economic capital 257:Operational risk 39: 37:Basel Framework 34: 21: 1305: 1304: 1300: 1299: 1298: 1296: 1295: 1294: 1270: 1269: 1268: 1263: 1240: 1176:Systematic risk 1074:Expected return 1054:Economic bubble 1049:Diversification 1044:Cost of capital 997: 854: 823: 775: 757:Volatility risk 721:Price area risk 687: 663:Settlement risk 632: 623: 593: 592: 576: 572: 562: 560: 551: 550: 546: 534: 530: 525: 508: 492: 427: 390:Basel Committee 355: 131:Risk management 118:Monetary policy 38: 32: 23: 22: 15: 12: 11: 5: 1303: 1301: 1293: 1292: 1287: 1282: 1272: 1271: 1265: 1264: 1262: 1261: 1256: 1251: 1245: 1242: 1241: 1239: 1238: 1233: 1228: 1223: 1218: 1213: 1208: 1203: 1198: 1193: 1188: 1183: 1178: 1173: 1168: 1163: 1158: 1153: 1148: 1143: 1138: 1133: 1132: 1131: 1126: 1121: 1116: 1111: 1106: 1101: 1096: 1091: 1086: 1076: 1071: 1066: 1061: 1056: 1051: 1046: 1041: 1036: 1031: 1026: 1021: 1016: 1011: 1005: 1003: 1002:Basic concepts 999: 998: 996: 995: 980:Margin at risk 976:Profit at risk 969: 967:Tracking error 964: 954: 949: 944: 939: 937:Risk-free rate 934: 929: 924: 919: 914: 909: 904: 899: 894: 889: 884: 879: 874: 868: 866: 860: 859: 856: 855: 853: 852: 847: 842: 837: 835:Execution risk 831: 829: 825: 824: 822: 821: 816: 814:Political risk 811: 806: 801: 796: 791: 785: 783: 777: 776: 774: 773: 762:Liquidity risk 759: 754: 752:Inflation risk 749: 744: 742:Margining risk 739: 734: 732:Valuation risk 729: 724: 701:Commodity risk 697: 695: 689: 688: 686: 685: 683:Securitization 680: 675: 670: 665: 660: 655: 649: 647: 638: 634: 633: 626:Financial risk 624: 622: 621: 614: 607: 599: 591: 590: 570: 544: 527: 526: 524: 521: 513:leverage ratio 473: 472: 469:initial margin 449: 438:mark-to-market 357: 356: 354: 353: 346: 339: 331: 328: 327: 321: 320: 319: 318: 310: 309: 305: 304: 303: 302: 297: 295:Liquidity risk 292: 284: 283: 279: 278: 277: 276: 275: 274: 269: 264: 254: 253: 252: 247: 237: 236: 235: 230: 220: 219: 218: 213: 212: 211: 208: 198: 197: 196: 191: 181: 171: 170: 169: 164: 159: 157:Leverage ratio 154: 141: 140: 136: 135: 134: 133: 124: 115: 103: 102: 98: 97: 96: 95: 94: 93: 92: 91: 86: 81: 76: 66: 61: 51: 43: 42: 24: 14: 13: 10: 9: 6: 4: 3: 2: 1302: 1291: 1288: 1286: 1283: 1281: 1278: 1277: 1275: 1260: 1257: 1255: 1252: 1250: 1247: 1246: 1243: 1237: 1234: 1232: 1231:Systemic risk 1229: 1227: 1224: 1222: 1219: 1217: 1214: 1212: 1209: 1207: 1204: 1202: 1199: 1197: 1194: 1192: 1189: 1187: 1184: 1182: 1179: 1177: 1174: 1172: 1169: 1167: 1164: 1162: 1159: 1157: 1154: 1152: 1149: 1147: 1144: 1142: 1139: 1137: 1134: 1130: 1127: 1125: 1122: 1120: 1117: 1115: 1112: 1110: 1107: 1105: 1102: 1100: 1097: 1095: 1092: 1090: 1087: 1085: 1082: 1081: 1080: 1077: 1075: 1072: 1070: 1067: 1065: 1062: 1060: 1057: 1055: 1052: 1050: 1047: 1045: 1042: 1040: 1037: 1035: 1032: 1030: 1029:Capital asset 1027: 1025: 1022: 1020: 1019:Asset pricing 1017: 1015: 1012: 1010: 1007: 1006: 1004: 1000: 993: 989: 985: 981: 977: 973: 970: 968: 965: 962: 958: 955: 953: 952:Sortino ratio 950: 948: 945: 943: 940: 938: 935: 933: 930: 928: 925: 923: 920: 918: 915: 913: 910: 908: 905: 903: 900: 898: 895: 893: 890: 888: 885: 883: 880: 878: 875: 873: 870: 869: 867: 865: 861: 851: 848: 846: 845:Systemic risk 843: 841: 838: 836: 833: 832: 830: 826: 820: 817: 815: 812: 810: 807: 805: 802: 800: 797: 795: 794:Business risk 792: 790: 787: 786: 784: 782: 778: 771: 767: 763: 760: 758: 755: 753: 750: 748: 745: 743: 740: 738: 735: 733: 730: 728: 725: 722: 718: 714: 710: 706: 702: 699: 698: 696: 694: 690: 684: 681: 679: 676: 674: 671: 669: 666: 664: 661: 659: 656: 654: 651: 650: 648: 646: 642: 639: 635: 631: 627: 620: 615: 613: 608: 606: 601: 600: 597: 587: 583: 579: 574: 571: 559: 555: 548: 545: 542: 538: 532: 529: 522: 520: 518: 514: 506: 502: 501:trading desks 498: 490: 486: 482: 478: 470: 466: 462: 458: 454: 450: 447: 443: 439: 435: 434: 433: 430: 425: 421: 416: 414: 410: 406: 402: 397: 395: 391: 387: 383: 379: 375: 371: 367: 366: 352: 347: 345: 340: 338: 333: 332: 330: 329: 326: 323: 322: 317: 314: 313: 312: 311: 306: 301: 298: 296: 293: 291: 288: 287: 286: 285: 280: 273: 270: 268: 265: 263: 260: 259: 258: 255: 251: 248: 246: 243: 242: 241: 238: 234: 231: 229: 226: 225: 224: 221: 217: 214: 209: 207: 204: 203: 202: 199: 195: 192: 190: 187: 186: 185: 182: 180: 177: 176: 175: 172: 168: 165: 163: 160: 158: 155: 153: 152:Capital ratio 150: 149: 148: 145: 144: 143: 142: 137: 132: 128: 125: 123: 119: 116: 114: 110: 107: 106: 105: 104: 99: 90: 87: 85: 82: 80: 77: 75: 72: 71: 70: 67: 65: 62: 60: 57: 56: 55: 54:Basel Accords 52: 50: 47: 46: 45: 44: 35: 30: 19: 1186:Moral hazard 1171:Risk of ruin 947:Sharpe ratio 809:Country risk 770:Deposit risk 668:Default risk 585: 573: 561:. Retrieved 557: 547: 540: 531: 474: 428: 417: 398: 369: 362: 360: 267:Standardized 228:Standardized 205: 122:Central bank 1280:Credit risk 1236:Toxic asset 1196:Speculation 1129:social work 1114:engineering 942:Risk parity 927:Omega ratio 840:Profit risk 727:Equity risk 705:Volume risk 693:Market risk 645:Credit risk 558:www.bis.org 541:www.bis.org 495:into their 465:correlation 457:asset class 451:PFE is the 424:derivatives 401:asset class 380:addressing 223:Market risk 174:Credit risk 1274:Categories 819:Legal risk 799:Model risk 713:Shape risk 709:Basis risk 637:Categories 523:References 487:to derive 446:collateral 442:haircutted 422:, EAD, of 386:derivative 316:Disclosure 300:Legal risk 113:Regulation 101:Background 1166:Risk pool 1079:Financial 461:"add-ons" 378:Basel III 372:) is the 69:Basel III 1089:analysis 1024:Bad debt 902:Drawdown 864:Modeling 580:(2017). 515:and the 459:, trade- 409:margined 64:Basel II 1104:betting 1094:analyst 1084:adviser 737:FX risk 405:hedging 240:CVA vol 109:Banking 89:Endgame 59:Basel I 1146:Hazard 897:Copula 764:(e.g. 703:(e.g. 509:SA-CCR 493:SA-CCR 370:SA-CCR 250:SA-CVA 245:BA-CVA 206:SA-CCR 167:Tier 2 162:Tier 1 1151:Hedge 1109:crime 1099:asset 932:RAROC 828:Other 563:3 May 262:Basic 194:A-IRB 189:F-IRB 179:SA-CR 1161:Risk 1124:risk 628:and 565:2018 483:and 403:and 384:for 361:The 127:Risk 84:FRTB 79:NSFR 1119:law 1064:ESG 584:, 578:FIS 489:RWA 485:LGD 272:AMA 233:IMA 216:CCF 210:IMM 201:EAD 184:IRB 74:LCR 1276:: 990:, 986:, 982:, 978:, 768:, 719:, 715:, 711:, 707:, 556:. 539:. 519:. 481:PD 396:. 129:/ 120:/ 111:/ 994:) 963:) 959:( 772:) 723:) 618:e 611:t 604:v 588:. 567:. 448:. 444:- 368:( 350:e 343:t 336:v 31:. 20:)

Index

Current exposure method
Standardized approach (credit risk)
Basel Committee on Banking Supervision
Basel Accords
Basel I
Basel II
Basel III
LCR
NSFR
FRTB
Endgame
Banking
Regulation
Monetary policy
Central bank
Risk
Risk management
Capital requirement
Capital ratio
Leverage ratio
Tier 1
Tier 2
Credit risk
SA-CR
IRB
F-IRB
A-IRB
EAD
SA-CCR
CCF

Text is available under the Creative Commons Attribution-ShareAlike License. Additional terms may apply.