Policy Brief: Derivatives Counterparty Risk Reporting: Impact of IFRS 13 Fair Value Measurement Requirements

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Source: CFA Institute
Vincent Papa, PhD, CFA

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Summary

During the financial crisis, counterparty credit risk (CCR) related to derivatives increasingly has been recognised as a key risk category and as a source of systemic risk. The prominence of derivatives-related CCR was evident with the bankruptcies of Lehman Brothers and monoline insurers such as Ambac and MBIA, as well as by the significant financial difficulties faced by the insurance behemoth AIG. Through the use of credit derivatives, these entities sold credit risk protection (i.e., provided credit risk insurance) to a significant number of banking institutions, and their subsequent collapses and financial difficulties turned the spotlight on the role of CCR.

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