Banks’ Counterparty Risk – Results of a Survey Conducted by Norges Bank and the Banking Insurance and Securities Commission

Abstract

Norges Bank has overall responsibility for promoting financial stability and works systematically to identify conditions that could trigger a systemic crisis. As part of this work, Norges Bank, in collaboration with the Banking, Insurance and Securities Commission, has conducted a survey of Norwegian banks’ exposures to their largest counterparties. The aim of the survey is to assess the risk of liquidity or solvency problems at Norwegian banks as a result of the failure of an important counterparty to fulfil its obligations. One exception is exposures to some large counterparties in foreign exchange transactions, but the credit risk associated with this type of transaction is expected to be reduced significantly when the krone is included in the international currency settlement system CLS in the first half of 2003. However, liquidity risk will not be reduced to the same exent.