Basel Committee publishes final guidelines for counterparty credit risk management
The Basel Committee has published final guidelines for counterparty
credit risk management.
The guidelines include key practices
critical to resolving long-standing industry weaknesses in
counterparty credit risk management.
The Committee will monitor
implementation of the guidelines on an ongoing basis.
The Basel
Committee on Banking Supervision today issued final guidelines for
counterparty credit risk (CCR) management. The 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 benefited from comments from a range of stakeholders as
part of the public consultation in April 2024. 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
encourages full adoption of its guidelines by members, particularly
for their internationally active banks, as soon as possible. It will
continue to monitor implementation of the counterparty credit risk
management guidelines on an ongoing basis.
Note to editors
The Basel Committee is the primary global standard setter for
the prudential regulation of banks and provides a forum for
cooperation on banking supervisory matters. Its mandate is to
strengthen the regulation, supervision and practices of banks
worldwide with the purpose of enhancing financial stability. The
Committee reports to the Group of Central Bank Governors and Heads of
Supervision and seeks its endorsement for major decisions. The
Committee has no formal supranational authority, and its decisions
have no legal force. Rather, the Committee relies on its members'
commitments to achieve its mandate. The Group of Central Bank
Governors and Heads of Supervision is chaired by Tiff Macklem,
Governor of the Bank of Canada. The Basel Committee is chaired by Erik
Thedéen, Governor of Sveriges Riksbank.
More information
about the Basel Committee is available here.