A solution to counterparty credit risk?
The race is on to find a solution to outstanding issues such as counterparty risk, double default and the treatment of illiquid assets on trading books before Basel II is enshrined in regulation.
Since its release in June, much energy has been devoted to analysing Basel II’s credit risk framework, and its implications for the banking sector. But many in the risk management and derivatives trading community are now focusing on what was left out of the June framework – in particular, the treatment of trading book issues.
Perhaps the most important unresolved issue is the capital treatment of counterparty risk that arises from over-the-counter derivatives trades or from securities financing
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