How Do Treasurers Authorize Credit Exposures?

Transparency is the new buzz for corporate treasury professionals in their constant pursuit to understand and track underlying risk. Like the shifting channels of the Mississippi River, credit exposures in investments and counterparties present continuously variable hazards to navigation. The credit crisis intensified treasurers’ efforts to understand their exposures, but too often formal reports were scrutinized only after a credit had worsened. In other cases, managers were either unwilling to share their specific research or legally restricted from doing so. The NRSROs contribute one component to a detailed analytical process, but as a stand-alone resource they lack the sensitivity to enable predictive evaluations — they are too often behind the market. In most corporate cash investment policies the NRSROs serve as the primary gatekeepers against inappropriate credits, but the reliance on ratings alone to qualify an investment or counterparty would limit a treasurer to a reactive risk control strategy.

Given this backdrop, this month we will look behind the curtain of a more thorough credit review process and provide our view of a proactive methodology for managing investment exposures and counterparty risk.

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Best Regards,

Ben Campbell
President & CEO