Know Your Bank: Strategies for Managing Counterparty Credit Risk

Aggregating Exposure Types. Only a handful of treasuries aggregate different types of credit exposure, e.g., deposits, in-the-money derivatives, and funding. The primary reason is that it’s difficult to collect the necessary internal data, which typically resides in different source systems within and outside of the finance organization.

Expanding the Menu of Metrics. Rating agencies’ failure to predict SVB’s collapse did not surprise treasurers, because rating agencies rely primarily on lagging indicators. The most significant strategy change treasuries are considering is including new metrics in credit risk assessment models.

Setting Limits. Surprisingly, 40% of respondents reported they do not have a fixed cap on their exposure to each bank. When a cap exists, it’s expressed in absolute dollars terms or as a percentage of, e.g., total cash, the bank’s size, credit rating and CDS spreads.