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Credit Risk Limit The groups of trades that are to be monitored are created by applying filters to the bank-wide set of trades. Each filtered set of trades is referred to as an Aggregation Set. Each Aggregation Set has a specific number of possible ‘Dimensions’ to which it must be possible to map each trade. Any trade that matches all dimension values for an Aggregation Set belongs to the set. For monitoring and reporting, each Aggregation Set is associated with one or more Aggregation Risk Metrics for which its value (including exposure term profile) can be calculated. As stated above, this pairing is referred to as an Exposure Definition. There are various prescribed combinations of dimensions to be monitored, and each different combination is referred to as an Aggregation Set Type. Each actual Aggregation Set will be of an Aggregation Set Type. In this and other sections of this document the rules for monitoring activities are described in reference to these Aggregation Set Types. For example, the Aggregation Set Types in combination with their risk metrics define the mandatory Limit and Exposure Definition points. These mandatory points are set so that when trading activity occurs, if no exposure definition or limit exists for the mandatory point, one is created by the system, thus the risk does not go unnoticed. Limits are set to limit the allowable exposure for an ‘Exposure Definition’ while Trading Restrictions are set to ensure adherence to rules/policy that is not an exposure versus limit check, for example, to ensure that maximum allowable tenors are not exceeded or business rules are not broken. For example, any Repo trade must have an enforceable legal agreement governing transactions between the organization and the Counterparty of the Agreement. The preceding section defined the data requirements for Limits and Exposure Definitions. There are some general rules that are to be applied across similar Limits and Exposure Definitions and there is also some configurability required. This section describes these general rules and the configurability requirements.
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