Growth in the over-the-counter (OTC) derivatives business and leveraged investments has led to a considerable increase in counterparty credit risk. In the wake of the last major market downturn in 1998, when counterparty credit risk last hit the headlines, a series of supervisory and market-led initiatives were put into place, examining both what had gone wrong and detailing what could and should be improved. Dealers then worked on reinforcing their risk processes and the legal documentation that underpins their management of these risks, developing new tools and systems to measure, shed, redistribute and mitigate these risks.
The promise
