Vastapuolariskin

Vastapuolariskin, often referred to in Finnish as counterparty risk, is the risk that the other party in a financial contract will default on its obligations before the contract is fulfilled, or fail to meet it fully. This risk is most prominent in bilateral trading and over-the-counter markets, where no central clearinghouse guarantees performance and where exposure depends on the counterparty’s creditworthiness.

Measured risk typically uses metrics such as the probability of default (PD), exposure at default (EAD), and loss given default (LGD). In practice, institutions apply credit risk models to estimate expected credit losses (ECL) under IFRS 9 and to price this risk through credit valuation adjustments (CVA). Wrong-way risk—where exposure rises as counterparty credit quality deteriorates—and basis risk are important considerations in assessing the true level of vastapuolariskin.

Management of vastapuolariskin involves reducing exposure and improving resilience. Tools include collateralization and margining, netting agreements, central clearing where possible, and diversification of counterparties. Institutions also set credit limits, monitor counterparty creditworthiness continuously, and use hedging strategies such as credit derivatives when appropriate.

Regulatory frameworks address vastapuolariskin by requiring adequate capital buffers for credit risk, enhanced reporting, and, in many markets, mandatory central clearing for standardized derivatives. While reforms have reduced bilateral exposure, vastapuolariskin remains a central concern for banks, asset managers, and other market participants in assessing potential losses from counterparty defaults.