On 30 April 2024, the Basel Committee on Banking Supervision (Basel Committee) published a consultation on guidelines for counterparty credit risk (CCR) management.

The draft guidelines are intended to provide a supervisory response to the significant shortcomings that have been identified in banks’ management of CCR, including the lessons learned from recent episodes of non-bank financial intermediary (NBFI) distress. They also take account of market developments in CCR management over the past decade as CCR management techniques have evolved rapidly, as have the complexity of derivatives and securities financing transaction products.

The draft guidelines include key practices critical to resolving long standing industry weaknesses in CCR management, including the need to:

  1. Conduct comprehensive due diligence of counterparties both at initial onboarding and on an ongoing basis.
  2. Develop a comprehensive credit risk mitigation strategy to effectively manage counterparty exposures.
  3. Measure, control and limit CCR using a wide variety of complementary metrics.
  4. Build a strong CCR governance framework.

The draft guidelines are designed to be broadly applicable to manage banks’ CCR exposures to all types of counterparties. However, the greatest potential benefits are expected to be in cases where banks have high-risk exposures to counterparties, including NFBIs. Banks and supervisors are therefore encouraged to take a risk-based and proportional approach in the application of the guidelines, considering the degree of CCR generated by banks’ line of business, their trading and financing activities and the complexity of such CCR exposures.

Next steps

The Basel Committee invites comments on the draft guidelines by 28 August 2024.

When finalised the draft guidelines will replace the Basel Committee’s Sound practices for banks’ interactions with highly leveraged institutions (published in January 1999).