Is monitoring counterparty risk getting on top of you?

Posted: 06/09/2012

Is monitoring counterparty risk getting on top of you?Four years of financial crisis and extreme events like the Lehman Brothers collapse and the Northern Rock bailout by the UK Government, have undermined investor's assumptions about banks and led to a long term shift in attitude about where to safely deposit cash. Fiduciaries who have the responsibility of client's cash seldom have the time or resource available to fully understand and analyse each bank's balance sheet yet they are responsible to their clients should a bank experience financial difficulty.

Achieving the correct balance between attractive yield and safety for cash deposits is a major issue today and that is likely to remain so for the foreseeable future. The need to monitor the risks associated with holding deposits at various counterparties has led to a new service from JCAP Treasury Services that is designed to inform depositors of any news that may affect the risk associated with JCAP's bank counterparties. Specifically designed for trust companies and corporates the service helps the fiduciary comply with its duty as a regulated entity to measure and monitor risk.

The risk associated with any bank deposit is that the counterparty to the deposit will not meet its contractual obligations to return the cash to the depositor and pay the required amount of interest. The factors that affect bank deposits however, are not just limited to the actual counterparty but also to a combination of other types of risk such as country risk, systemic risk, political risk, aggregate risk and specific risk.

JCAP regularly conducts analysis of financial institutions and can now offer clients a counterparty risk monitoring service that takes into account not only the credit ratings that are published by the major agencies but also relevant other factors including: any financial or political news that affects risk; sovereign debt yields; financial strength ratios; credit default swaps.

With any bank deposit the ultimate responsibility for counterparty risk always rests with the depositor, however JCAP's counterparty risk monitoring service is designed to assist the client in selecting and managing their counterparty exposure.

By receiving JCAP's counterparty monitoring service a fiduciary is kept informed of events that affect counterparty risk from an experienced team of financial experts. This information helps the fiduciary fulfil its duty to its underlying clients.

Further details of this service are available from JCAP at, info@jcap.co.uk


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