Counterparty credit risk is the risk that the other side of a contract will default on payment obligation, whereby 'the other side' is always the FI.

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The other side of a contract can be any entity, not necessarily a financial institution (FI). It can be another counterparty, such as a corporation, government entity, or individual. Therefore, counterparty credit risk is the risk of default by the other party to the contract, irrespective of their industry or sector.

Counterparty Credit Risk Is the Risk That the Other Side