M V Hawtin
Director
14 February 1992
Mr J E Mortimer HM Treasury Parliament Street London SW1P 3AG
:HKA 182/3
4/44
187
ECGD
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Dear Janie,
EXPOSURE MONITORING
OF EXPOSURE
ACCOUNTING FOR DIFFERENT CATEGORIES
1 You indicated at our meeting on 14 January that you were broadly content with the proposals set out in the paper attached to my letter of 8 January for accounting for different types of exposure under the business budget etc, but that you would like
have some more information on how we arrived at the weightings, and the implications for the business budget.
2
This letter seeks to meet your out under three headings:
to
request. It is set
2.1 The facts and analysis which underlie the weightings themselves;
2.2 A summary of historical information on the amounts of exposure in the different categories; and
2.3 The comparative impact upon the budget under the current and proposed systems for accounting for
exposure.
Weightings
3
As you will have appreciated from our paper, although the principle of weighting different types of exposure is intuitively reasonable, deriving the actual exposure weightings is not an easy or straightforward process. The complexity of the problem combined with the lack of adequate and relevant data rules out a wholly quantified approach. Instead, we have based our proposed weightings on a quite cautious underwriting judgement of the risks involved, informed where possible by our actual experience of the way in which defaults occur.