A state of flux

Christopher Lee, UBS

Before the current financial crisis, there was a widespread and cosy assumption that counterparty risk was practically non-existent when dealing with major banks or AAA-rated entities. Sometimes, when an individual exposure got large enough, collateral would be posted to make it more manageable. In many cases, interbank trades were not collateralised at all. Today, that seems naive. Crippling losses suffered by AIG forced the US government to provide the insurer with a huge credit facility -

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