Economics, Econometrics and Finance
4 years ago

Counterparty Credit Limits Proven Ineffective in Mitigating Risk, Study Shows

SSRN Electronic Journal
Counterparty Credit Limits: An Effective Tool for Mitigating Counterparty Risk?
Martin Gould, Nikolaus Hautsch, Sam Howison, Mason A. Porter

Paper Summary

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Counterparty credit limits (CCLs) are used by financial institutions to limit their exposure to certain parties. A study on foreign exchange trading found that CCLs had minimal impact on most trades. However, simulations showed that CCLs can be crucial in specific situations.