The Credit Risk Group employs an array of processes to fix ceilings on exposure arising from a counterparty or issuer becoming unsuccessful in performing on its commitment of the deal. The Group executes analysis in the perspective of industrial, regional, and international economic trends and includes portfolio and intensity influences at the time of shaping tolerance levels. Credit risk limits consider steps comprising both present and prospective exposure and are fixed and examined by broad risk category and tenor to maturity. (Risk Management)
Credit risk alleviation methods comprise, where suitable, the prerogative to need startup collateral or margin, the privilege to cease transaction or get guarantee in case any untoward incidents happen, the prerogative to ask for the guarantee in the event when some exposure ceilings are crossed, and the purchase of credit default safeguards. With the participation of the senior management, Merrill Lynch undertakes routine portfolio assessments, examines counterparty creditworthiness, and estimates transaction risks to accomplish initial problem recognition and safeguarding against undesirable credit-linked losses. Credit risk and exposure that stem from Merrill Lynch's retail customer business is scrutinized relentlessly by CRM. The various exposures come through credit risks for mortgages, home equity lines of credit, margin accounts, and working capital lines which Merrill Lynch keeps with several small business clients.
At the opportune moment, these exposures are collateralized in keeping with the regulatory compulsions entailing such actions. The credit risk in Merrill Lynch's U.S. banks' investment portfolios is reviewed with the confines of CRM and through credit risk management analysts. Apart from that, Merrill Lynch's U.S. banks have their own credit approval and monitoring...
Merrill Lynch forays into International Swaps and Derivatives Association, Inc. master agreements or their analogues with every of its derivative counterparties at the earliest possible. Master netting pacts gives immunity to insolvency in some situations and, in some instances, facilitates receivables and payables with the identical counterparty to be equalized on the Consolidated Balance Sheets, presenting a more significant balance sheet presentation of credit exposure. (Risk Management)
To respond in a better fashion to credit risk management, Merrill Lynch needs guarantee, mainly U.S. Government and agencies securities, on several derivative business deals. One more exacting example of credit risk links to the procedure of squaring up of financial transactions. In case if one aspect of the transaction is completed, however the other one does not attains success, a loss has to be suffered which is equal to the principal amount of the deal. It would be prudent on the part of Merrill Lynch to perform efficiently in the right direction to averting loss. Therefore, on the whole there must be competence towards setting up a suitable credit risk setting, functioning under a stable credit-advancing procedure, keeping a correct credit management, assessing and monitoring procedure; and making sure sufficient controls over credit risk. (Note 3: Trading and Related Activities)
References
Note 3: Trading and Related Activities. Retrieved at http://www.ml.com/annualmeetingmaterials/annrep00/ar/note3.html. Accessed on 20 May, 2005
Principles for the Management of Credit Risk. July, 1999. Retrieved at http://www.bis.org/publ/bcbs54.htm. Accessed on 20 May, 2005
Risk Management. Retrieved at http://www.ml.com/annualmeetingmaterials/annrep2001/ar/.%5Crisk.html. Accessed on 20 May, 2005
