Going the wrong way
Dealers have suffered billions of dollars of losses from wrong-way counterparty credit exposures with monoline insurers. Could they have been avoided? Mark Pengelly investigates
Counterparty credit risk has become an increasingly significant issue since losses on US subprime mortgages became a cause for concern in July 2007. In the past six months, worries about dealing with vulnerable counterparties have even infected the interbank market, turning once-placid Libor rates into a gauge of market fear (Risk January 2008, pages 74-76).
From being a somewhat mysterious back-office preoccupation, counterparty credit risk is stepping out from the shadows, acknowledges Rob O
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