Counterparty Risk in German Banking
Senior practitioners discuss changes in the OTC markets due to new regulations and the impending Basel lll capital accord. This Quantifi seminar explores how banks are transitioning their business models, generally moving away from capital intensive businesses and shifting decision making authority from the trading desks to central management groups.

Dmitry Puchavesky introduces the panel and provides overview of the speed of evolution of CVA and the impact of the financial crisis, resulting in the introduction of new regulation including Basel lll.

This diverse panel included Head of CVA Pricing and Analysis from Commerzbank, Head of Risk Management Markets from Deka Bank and a Partner from Dfine. This discussion and the following Q&A provided an interesting insight into how the issue of counterparty risk is affecting the German banking community.

The panel provides their views on the purpose of CVA and also how to determine the right approach for calculating CVA taking into account trade data parameters and the different data requirements between front and middle office.


  • Challenges & best practices in setting up a CVA process
  • Regulatory priorities and counterparty risk
  • How are banks hedging CVA now and in the future?
  • Calculation, attribution, and mitigation of risk costs


  • Dmitry Pugachevsky, Director of Research, Quantifi
  • Birgitta Drwenski, Head of CVA Pricing and Analysis, Commerzbank AG
  • Dirk Talkenberger, Head of Risk Management Markets, Deka Bank
  • Dr. Mark W. Beinker, Partner, d-fine GmbH



Banks Are Not Ready for Counterparty Risk Elements of Basel lll

Enhancing Counterparty Credit Risk management practices is a key focus for banks. This is in response to changes in accounting rules and new prudential and market regulations, which have tightened substantially following the financial crisis. Collectively, these changes are having a deep impact on the market and the way banks price and manage the risk associated with derivatives.


Measurement and Management of Counterparty Risk

The measurement and management of counterparty risk is in the midst of a revolution. Within recent memory of most counterparty risk managers it all used to be so much simplier. Limits were set on the same basis as traditional lending, and the exposure measured against those limits was quantified using simple add-on factors applied to the notional of each transaction. Regulatory capital was based on the simple methodology specified under Basel I.


Challenges in Implementing a Counterparty Risk Management Process

Most banks are in the process of setting up counterparty risk management processes or improving existing ones. Unlike market risk, which can be effectively managed by individual trading desks or traders, counterparty risk is increasingly being priced and managed by a central CVA desk or risk control group since the exposure tends to span multiple asset classes and business lines. Moreover, aggregated counterparty exposure may be significantly impacted by collateral and cross-product netting agreements.

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