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Counterparty Risk and How to Deal with It

16 Pages Posted: 27 Dec 2009  

Tom Van Dyck

Catholic University of Leuven (KUL)

Date Written: November 6, 2009

Abstract

In this Discussion Paper it is argued that: (1) generally the existing counterparty risk protections have proved to be effective under very demanding conditions. In that context, the proposed piecemeal and “vertical” approach by the European Commission – whereby targeted corrections are made without demolishing the existing framework – can be applauded; and (2) on the other hand do the current proposals fail to take into account several important “horizontal” issues of counterparty risk: the main risks are not just about collateral to counterparties or derivatives with counterparties, but concern “size”, “complexity” and “risk management” – not of the counterparty but of both parties. The European Commission misses this point to the extent that its proposals fail to properly address these issues.

Keywords: Financial crisis, Counterparty risk, Settlement Finality Directive, Collateral Directive, Derivatives, ISDA

Suggested Citation

Van Dyck, Tom, Counterparty Risk and How to Deal with It (November 6, 2009). Available at SSRN: https://ssrn.com/abstract=1527769 or http://dx.doi.org/10.2139/ssrn.1527769

Tom Van Dyck (Contact Author)

Catholic University of Leuven (KUL) ( email )

Tiensestraat 41
Leuven, B-3000
Belgium
+3225335245 (Phone)

HOME PAGE: http://www.kuleuven.be/onderwijs/aanbod/syllabi/C06B5AE.htm

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