Freddie Mac 2008 Annual Report Download - page 172

We seek to manage our exposure to counterparty credit risk using several tools, including:
• review of external rating analyses;
• strict standards for approving new derivative counterparties;
• ongoing monitoring of our positions with each counterparty;
• managing diversification mix among counterparties;
• master netting agreements and collateral agreements; and
• stress-testing to evaluate potential exposure under possible adverse market scenarios.
On an ongoing basis, we review the credit fundamentals of all of our OTC derivative counterparties to confirm that they
continue to meet our internal standards. We assign internal ratings, credit capital and exposure limits to each counterparty
based on quantitative and qualitative analysis, which we update and monitor on a regular basis. We conduct additional
reviews when market conditions dictate or events affecting an individual counterparty occur.
All of our OTC derivative counterparties are major financial institutions and are experienced participants in the OTC
derivatives market despite the increase in OTC derivative counterparties that have credit ratings below AA–. Our OTC
derivative counterparties that have credit ratings below AA– are subject to a collateral posting threshold of $1 million or less.
See “NOTE 18: CONCENTRATION OF CREDIT AND OTHER RISKS” to our consolidated financial statements for
additional information.
Table 75 summarizes our exposure to counterparty credit risk in our derivatives, which represents the net positive fair
value of derivative contracts, related accrued interest and collateral held by us from our counterparties, after netting by
counterparty as applicable (i.e., net amounts due to us under derivative contracts). This table is useful in understanding the
counterparty credit risk related to our derivative portfolio.
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