Member question: âDoes your organization review counterparty exposure? If so, how do you use this information?
- âWhat exposure types do you include? Cash, bank products, derivative contracts, other?
- âI understand that there are some organizations that set limits to how much exposure can be outstanding per counterparty. Does anyone have this practice in place?â
Peer answer 1: âI monitor this frequently and have limits tied to my overall assets. Here are some items we look at for our liquidity providers:
- Regulatory environment and views
- Liquidity on their platform
- Any policies and procedures that are shared; shared financials when applicable
- Customer service, which is always a big one.â
Peer answer 2: âWe monitor our counterparty exposure closely, and formally review it at a leadership level at least once a quarter (part of our policy). We bucket our exposures into three different categories: operating cash, investments and derivatives.
- âWe have a pretty strict policy on investments/excess cash; so when monitoring/reporting, weâre making sure weâre within our global limits and call out any issues we have experienced or potentially could occur in the near future. We have many local markets that manage their cash directly, so weâre making sure weâre within limits from a global perspective.
- âThe derivative exposures are monitored from a collateral perspective and help when looking at new derivatives and deciding which banks we may choose to execute with. We donât have a limit on the amount outstanding for derivatives; we just monitor to make sure CSAs are working as intended.
- âThe operating cash exposures are monitored differently as weâre required to have various bank accounts due to local market regulations. We donât have a policy weâre adhering to for this section of cash but make sure we know where all our cash isâand where to focus first if something were to occur globally (Covid pandemic, financial crisis, etc).â
