Reflections on Future Counterparty Credit Risk Modeling Challenges

As we move further into 2026, it is worth reflecting on future challenges to modeling CCR risk. Let’s start by focusing on how the ecosystem has evolved in recent years, driven by regulatory intervention.

Since the financial crisis of 2008, the regulatory landscape for CCR has shifted from an opaque, bilateral environment to a highly standardized and transparent framework.

The following are the most significant initiatives implemented:

• Shift to central counterparties (CCPs): Post-crisis reforms such as European Market Infrastructure Regulation (EMIR) mandated that standardized over-the-counter (OTC) derivatives be cleared through central counterparties.
• Mandatory margin requirement: For trades that remain bilateral, global uncleared margin rules (UMR) mandate exchanges of both variation and initial margin.
• Enhanced capital requirements:
  • Basel III. Changes in the capital framework introduce a new charge for credit valuation adjustment (CVA) risk to account for mark-to-market losses on counterparty’s credit worthiness deterioration.
  • Standardised Approach for Counterparty Credit Risk (SACCR). New exposure at the default (EAD) method that is more risk-sensitive than the previous approach. Fully adopted in most jurisdictions already.
• Margin period of risk (MPOR) modeling: Models to be adjusted to account for longer liquidation timelines for illiquid assets or during periods of extreme market volatility. Focus on forward liquidity requirements derived from exchanging margin under stressed conditions.
• Idiosyncratic risk modeling: Regulators now expect models to account for wrong-way risk and concentration risk in CCR models.
• Stress testing modeling: Fully integrated stress testing programs that impact both derivatives/collateral valuations and margining decisions under extreme shocks.
• Climate risk: Need to adjust counterparties’ probability of default (PDs) based on their exposure to climate drivers over a five to ten year horizon. CCR modeling to shift from a purely financial framework.

These measures contributed to a 20% contraction of volume in the levels of OTC trading activity from the peaks of the pre-2008 crisis. Those peak levels did not consistently return until 2023. In light of this, we could assume no significant changes should be expected in CCR modeling in the short to middle term, as risk has been transferred and mitigated significantly.

However, the opposite is closer to the truth, as indicated by the latest international guidance for CCR published at the end of 2024. This long-awaited new guidance puts a lot of emphasis on less commonly modeled items such as concentration, liquidity and wrong-way risk. Likewise, a proper stress testing program will be at the core of regulatory modeling expectations for CCR.

In addition, although perhaps less prominent at this time, it would be important not to ignore the regulatory expectation to include climate risk (both transition and physical risk) in all aspects of a bank’s risk management process, including CCR.

All considered, the following are the most important themes for CCR modeling in the short to medium term:

All things considered, in early 2026, CCR modeling looks as dynamic and challenging as it has ever been.