Cash & Working CapitalRisk ManagementTalking Shop

Talking Shop: How Do You Use Counterparty Exposure Information?

By March 25, 2021No Comments

Member question: “Does your organization review counterparty exposure? If so, how do you use this information?

  • “What exposure types do you include? Cash, bank products, derivative contracts, other?
  • “I understand that there are some organizations that set limits to how much exposure can be outstanding per counterparty. Does anyone have this practice in place?”

Peer answer 1: “I monitor this frequently and have limits tied to my overall assets. Here are some items we look at for our liquidity providers:

  • Jurisdiction
  • Regulatory environment and views
  • Settlement process
  • Liquidity on their platform
  • Any policies and procedures that are shared; shared financials when applicable
  • Customer service, which is always a big one.”

Peer answer 2:  “We monitor our counterparty exposure closely, and formally review it at a leadership level at least once a quarter (part of our policy). We bucket our exposures into three different categories: operating cash, investments and derivatives.

  • “We have a pretty strict policy on investments/excess cash; so when monitoring/reporting, we’re making sure we’re within our global limits and call out any issues we have experienced or potentially could occur in the near future. We have many local markets that manage their cash directly, so we’re making sure we’re within limits from a global perspective.
  • “The derivative exposures are monitored from a collateral perspective and help when looking at new derivatives and deciding which banks we may choose to execute with. We don’t have a limit on the amount outstanding for derivatives; we just monitor to make sure CSAs are working as intended.
  • “The operating cash exposures are monitored differently as we’re required to have various bank accounts due to local market regulations. We don’t have a policy we’re adhering to for this section of cash but make sure we know where all our cash is—and where to focus first if something were to occur globally (Covid pandemic, financial crisis, etc).”
Justin Jones

Author Justin Jones

More posts by Justin Jones