TOOL 4.4
EARLY ACTION 1: LIMIT / REDUCE EXPOSURE (WITHOUT CLIENT CONTACT)
INTERNALLY
The potential of loss to the bank will determine whether you
• Ensure that the systems are in place to implement these actions at a later date or
• Implement these actions decisively.
1. Existing exposure (all relevant credit bases)
• Reduce / cancel unused and uncommitted facilities
• Increase pricing on uncommitted lines
• Arrange payment traffic to reduce intra-day exposure
• Where possible encourage a switch to
‒ Shorter rollover and interest periods
‒ Shorter exposure periods in OBSI facilities
‒ Lower risk counterparties, countries and products
• Monitor closely /restrict
‒ New drawdowns on committed facilities to see if it is possible to stop further drawings
‒ Withdrawal of credit balances and other assets held for the client
2. New business
• Explore areas to replace existing facilities with lower risk facilities by
‒ Offering new products e.g. securitisation
‒ Changing counterparties / country
‒ Extending existing collateral to new facilities
• Freeze other initiatives involving increase in exposure
FINANCIAL MARKETS
Consideration can be given to selling the asset or taking out a credit derivative (CD) but the following preconditions will need to be met
• The counterparty is rated and uses capital markets for funding
• There is a liquid secondary sales or CD market
• Facility documentation contains the necessary transfer and confidentiality language
• The early warning signal has been identified early enough or alternatively there is an established distressed debt market
