Counterparty concentration risk
About this course
The Herfindahl Index, designing concentration limits across multiple dimensions, audit findings to avoid, and practical monitoring routines.
What you'll learn
- Principles of concentration
- Designing limits
- What auditors look for
- Practical management
Part of these pathways
Related courses
- Credit ratings explained
- Bank credit analysis
- CDS spreads
- LA Credit Analysis
- Interest rate risk
- Liquidity & cashflow forecasting
Common questions
What is Concentration?
Exposure to a single counterparty or counterparty type expressed as a proportion of total holdings.
What is Diversification?
Spreading exposure across multiple counterparties so that the failure of any one doesn't cause material loss.
What is Downgrade trigger?
Pre-defined procedure for when a counterparty's credit rating falls below the council's minimum threshold.
What is Herfindahl Index (HHI)?
A measure of concentration calculated as the sum of squared proportions. Ranges from 1/N (perfectly diversified across N counterparties) to 1 (100% concentrated in one). Lower is more diversified.
What is Sector concentration cap?
Maximum proportion of total holdings in a single counterparty type (banks, MMFs, sovereigns, etc.).
What is Single-counterparty limit?
Maximum amount the council can hold with any one counterparty, set in the TMSS. Caps individual concentration.