Is true counterparty risk a myth?
With these myriad challenges, can a large global investment firm ever get a true, up-to-the-minute picture of their risk exposure? Kevin McPartland, senior analyst of Tabb Group, says it is possible but extremely difficult. He says that if scientists can control a robot on the surface of Mars in real time then banks can calculate risk. “Unfortunately, decades of cultural, business and technology silos need to be worked through and changed before global, on-demand risk can become a reality,” he says. According to Georges Gedeon, chief investment officer for Mereor, counterparty risk is an issue primarily on over-the-counter (OTC) productsÂ-such as loans, credit default swaps (CDSes), and OTC equity derivatives-where there is no central clearing. “As a firm we need to know what our exposure is at any time to a counterparty in OTC products, both gross and net. The aim is to continuously review that exposure and adjust it accordingly to acceptable levels,” he says. “Also, by being a credit
