Basel Committee has published a consultation on guidelines for counterparty credit risk management. The proposed guidelines include key practices critical to resolving long-standing industry weaknesses in counterparty credit risk management. The Basel Committee on Banking Supervision issued a consultative document on guidelines for counterparty credit risk (CCR) management. The proposed guidelines will replace the Committee’s Sound practices for banks’ interactions with highly leveraged institutions published in January 1999.
The guidelines include key practices critical to resolving long-standing industry weaknesses in CCR management, including the need to:
(i) conduct comprehensive due diligence of counterparties both at initial onboarding and on an ongoing basis;
(ii) develop a comprehensive credit risk mitigation strategy to effectively manage counterparty exposures;
(iii) measure, control and limit CCR using a wide variety of complementary metrics; and
(iv) build a strong CCR governance framework. The guidelines provide a supervisory response to the significant shortcomings that have been identified in banks’ management of CCR, including the lessons learned from recent episodes of non-bank financial intermediary (NBFI) distress.
The guidelines are designed to be broadly applicable to manage banks’ CCR exposures to all types of counterparties. However, the greatest potential benefits are expected to be in cases where banks have high-risk exposures to counterparties, including NBFIs. Banks and supervisors are encouraged to take a risk-based and proportional approach in the application of the guidelines, taking into account the degree of CCR generated by banks’ lines of business, their trading and financing activities and the complexity of such CCR exposures.
The Committee welcomes comments from a broad range of interested stakeholders on the proposed guidelines, which should be submitted here by 28 August 2024. All submissions will be published on the BIS website unless a respondent specifically requests confidential treatment.
