Credit Risk Summit: Citi unveils new loan credit model after $900m hedging error
US bank Citigroup has outlined a new credit risk modelling framework for its corporate loan portfolio in response to approximately $900 million lost in hedging errors in the fourth quarter of 2008.
The hedging loss arose from the use of the Financial Accounting Standards Board's FAS 159 rule on fair-value accounting, which forced the hedging instruments - single-name or index credit default swaps (CDS) - to be marked to market, while loans were valued on an accrual basis. The result was that
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