Counterparties: A question of trust

FOR CORPORATES, THE financial crisis that erupted in September 2008 brought to the fore an issue many had scarcely considered in relation to their bank providers: counterparty risk. The implosion of Lehman Brothers demonstrated for the first time in a generation that big-name banks can disappear, with all the negative repercussions that entails for their clients.

In the months that have followed, some banks have lost business as corporates have reacted to concerns about their solvency and sought to diversify the risks presented by their treasury providers. More generally, counterparty risk has been elevated to a board-level concern – for a while in the autumn it was all boards talked about – bringing an enhanced role for corporate treasuries.

"Counterparty risk was not perceived as key risk until the crisis," says Vineet Sood, head of treasury at IT services and outsourcing company Tata Consultancy Services in Mumbai, India. "After the...