// definition
Counterparty credit risk
Default risk before a transaction’s final settlement
Short definition
The risk that a counterparty defaults before a transaction’s cash flows are finally settled. A loss can arise when the contracts have positive economic value to the other party at default. Exposure changes with market conditions; collateral and netting affect the remaining loss.
risk atlas
Knowledge map
Intuition
A hedge provides protection to the extent that its counterparty pays or collateral supports recovery.
Related analyses
Primary sources
- Basel Committee, CRE50: counterparty credit riskParagraph 50.1: default before settlement and positive economic value. An international standard, distinct from national implementation.