For most banks, the largest source of credit risk is loans (as of 2000)1. Credit risk also arises from transactions such as foreign exchange, futures, swaps, bonds, equities and options, and from the settlement of transactions1. In exchange-traded transactions, too, a loss occurs if the counterparty fails after a trade is made and does not settle as planned. This risk is also called credit risk2.

Counterparty credit risk is the part of credit risk that is limited to the counterparty to a transaction such as a derivative. In a loan, only the lender is the party exposed. In a derivative, the amount at risk changes with the market, and either party to the transaction can be the one exposed3. The Basel Committee document also calls for a credit limit for each borrower or counterparty that adds up exposure across different types of transactions4.

This site writes credit risk for the risk of lending and of transactions in general, and counterparty credit risk when the discussion is limited to the counterparty to a transaction such as a derivative.

Notes

  1. Basel Committee on Banking Supervision, "Principles for the Management of Credit Risk" (the FSA's provisional translation, "信用リスク管理の諸原則（仮訳）" (in Japanese), September 2000), section I, paragraph 3. ↩ ↩2

  2. Japan Exchange Group, "信用リスク" (Credit risk) (glossary, in Japanese), paragraph 1. ↩

  3. Yoshihiko Uchida, Bank of Japan, "カウンターパーティー・リスクの管理とCVAの活用" (Counterparty risk management and the use of CVA) (June 2010, in Japanese), p. 5 and its note. Loan repayment delays are not symmetric between seller and buyer, while derivative counterparty risk is symmetric. ↩

  4. Basel Committee on Banking Supervision, "Principles for the Management of Credit Risk", Principle 5. ↩