Counterparty Risk: Comprehensive Bank Risk Assessment

Comprehensive

LINKS counterparty bank ranking takes into account: current and expected capital adequacy, relevant macro-prudential environment, ability to receive emergency funding in case of distress, exposure to global systemic risks, emerging CDS- and rating-implied gaps.

Flexible

Rating is carried out based on five pillars: market, balance sheet, complexity, systemic risk exposure and external factors. Adjustable weights can be assign to pillars as well as individual measures.

Data Sources

Assessment incorporates not only traditional sources such as quarterly and annual filings, footnotes, pillar 3 reports, but also various industry databases, third-source exposure databases and Bank of International Settlement publications.

Critical and conservative methodology

  • Off-balance sheet exposures have long masked the actual performance of the banks, with most banks using various types of special vehicles (SIV, SPE, VIE etc.) in their securitization programs. All off balance-sheet exposure found in the footnotes, where possible, has been added to total assets.
  • Derivatives exposure has understandably created another layer of risk and complexity. In our assessment we have included a certain proportion of gross reported exposure on balance sheet to reflect the inherent leverage and risk of the position.
  • Apart from counterparty collateral risk, there is a significant fair value model risk for a part of this portfolio that is in the Level 2/3 group – set of assets that are included in the balance sheet at a model-based value.
  • Quality of share capital has been another contentious issue, particularly for the European banks. Tier 1 and Core Tier 1 capital adequacy assessments are too lenient towards banks. We have opted for focusing only on common share capital for the purpose of capital adequacy.
  • SG SOCIETE GENERALE
  • CITI CITIGROUP INC.
  • CS CREDIT SUISSE GROUP LTD
  • UBS UBS AG
  • SS STATE STREET
  • DB DEUTSCHE BANK AKTIENGESELLSCHAFT
  • BONY BNY MELLON
  • UNIC UNICREDIT, SOCIETA PER AZIONI
  • MS MORGAN STANLEY
  • GS GOLDMAN SACHS
  • JPM JPMORGAN CHASE & CO.
  • ING ING BANK N.V.
  • CA CREDIT AGRICOLE SA
  • BOFA BANK OF AMERICA CORPORATION
  • BARC BARCLAYS BANK PLC
  • NTRS NORTHERN TRUST CORPORATION
  • BNP BNP PARIBAS
  • HSBC HSBC BANK PLC
  • NORD NORDEA BANK AB
  • RBS THE ROYAL BANK OF SCOTLAND PUBLIC LIMITED COMPANY
  • SAN BANCO SANTANDER, S.A.
  • STNCH STANDARD CHARTERED BANK
  • WELLS WELLS FARGO & COMPANY

Rating of Major Counterparty Bank

All major counterparty banks are rated based on the five pillars of risk. A comprehensive coverage of all risk factors including:

  • Rating-implied CDS spread premium
  • Equity realized vs. VIX-implied volatility
  • Degree of complexity, including (Level 1/ Level 2,3 assets)
  • Exposure to systemic risks
  • Sustainability of home-base country finances

Sample Spreadsheet: Deutsche Bank

The complete rating of Deutsche Bank based on five pillars.
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