Counterparty

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Related to Counterparty: Counterparty credit risk

Counterparty

The other participant, including intermediaries, in a swap or contract.

Counterparties

The persons or institutions engaging in a transaction. That is, the buyer and the seller of a good are the counterparties to the sale of that good. While it could apply to any transaction, the term is most common when referring to the counterparties of a swap.

Counterparty.

In any financial contract, the persons or institutions entering the contract on the opposite sides of the transaction are called the counterparties.

For example, if you sign a contract to sell an item that you produce to a buyer, you and the buyer are counterparties to the contract.

Similarly, the counterparties in financial transactions known as forwards or swaps are the banks or corporations that make deals between themselves to protect future cash flows or currency values.

References in periodicals archive ?

Supervisory staff is monitoring each bank's management of hedge fund counterparty exposures as well as the bank's efforts to address any identified risk management shortcomings.

Statement by Laurence H. Meyer, Member, Board of Governors of the Federal Reserve System, before the Subcommittee on Financial Institutions and Consumer Credit, Committee on Banking and Financial Services, U.S. House of Representatives, March 24, 1999

This can be achieved through what we call "stress tests," where a bank conducts "what if" analyses of how credit exposures to a single counterparty could grow under these market conditions.

Statement by William J. McDonough, President, Federal Reserve Bank of New York, before the Subcommittee on Financial Institutions and Consumer Credit, Committee on Banking and Financial Services, U.S. House of Representatives, March 24, 1999

Among the areas to be addressed are (1) the credit approval process and ongoing monitoring of credit quality, including the availability of information on counterparties and its use in making credit decisions; (2) procedures for estimating potential future credit exposures, including stress testing to gauge exposures in volatile and illiquid markets; (3) approaches to setting limits on counterparty credit exposures; and (4) policies regarding the use of collateral to mitigate counterparty credit risks.

Statement to the Congress

Supervisors of banks and security firms must assess whether current procedures regarding stress testing and counterparty assessment could have been improved to enable counterparties to take steps to insulate themselves better from LTCM's debacle.

Statement by Alan Greenspan, Chairman, Board of Governors of the Federal Reserve System, before the Committee on Banking and Financial Services, US. House of Representatives, October 1, 1998

Such facilities potentially could make management of counterparty credit risks and liquidity risks even more effective.

Statement to Congress

Moreover, in some cases, a dealer in financial transactions may assume responsibilities beyond the role of a mere counterparty.

Statement by Alan Greenspan, Chairman, Board of Governors of the Federal Reserve System, before the Committee on Banking, Housing and Urban Affairs, U.S. Senate, January 5, 1995