Counterparty Risk-Weighted Assets
- FX
The risk-weighted-assets notes translate counterparty exposure into a capital calculation. The exposure-at-default measure is combined with a risk weight or a model-based capital requirement, with maturity, collateral, netting, and recovery assumptions affecting the result.
The important control is consistency. Current exposure, potential future exposure, and the counterparty's default probability describe different parts of the problem; substituting one for another can make a capital number look precise while measuring the wrong risk.
FE-635 treats the calculation as a modeling and governance exercise: document the inputs, preserve the quote and currency conventions, and make the scenario behind the capital estimate reproducible.