Knowing Me, Knowing You: A Real-World Guide to Understanding Counterparty Risk in FIs

Counterparty risk assessment should never be an annual box for treasury to tick; it should be treated as a continuous discipline, says Tim Tezisler, a strategic communications expert in the regulated FS field. Here, he explains to Tom Alford, Deputy Editor, TMI, what this means in practice.

In an era defined by geopolitical volatility, accelerating regulatory change, and the ever-present threat of financial crime, the relationship between corporate treasury and its FI partners has never demanded more scrutiny. The collapse of counterparty confidence, often sudden, always damaging, is rarely without antecedent. The signals exist. The question is whether treasurers know where to look, what to ask, and how to act on what they discover.

Certified by the FCA and Prudential Regulation Authority (PRA), Tezisler has almost two decades’ experience in strategic communications across regulated financial services. His résumé includes a senior role at an international bank where he operated at the intersection of reputational risk, regulatory compliance, and institutional crisis management. The following Q&A sets out a practical framework for treasurers navigating the complexities of counterparty assessment.

Tom Alford (TA): Why is it so important for treasury to build the most complete picture of its FI partners, and why has this become more pressing now?

Tim Tezisler (TT): Risk isn’t just a numbers game. The cracks show up in communication long before they show up in a credit rating. I’ve spent two decades working with companies and institutions that have come under some form of pressure or crisis. From investigating companies for The Sunday Times, to working with FIs and professional service firms, what I’ve learnt is that the warning signs of a company under stress rarely show up in its balance sheet first.

Where they appear is more nuanced in how an organisation communicates, who is put in front of you, and what it refuses to say. Warren Buffett famously said: “Only when the tide goes out do you discover who’s been swimming naked.” But who are the people shaping the public narrative, and whose interests do they serve?

Every major institutional failure of the past decade has seen the same cast of actors appear in every headline. The CEO and senior leadership, often projecting confidence while internal indicators deteriorate. The external auditor providing institutional legitimacy without independent verification. The sell-side analyst maintaining buy ratings until days before collapse. The rating agency upgrading or holding grade as governance failures compound. The financial regulator defending rather than scrutinising. And then there’s PR and crisis communications agencies , hired to suppress journalism and rebuff short sellers.

None of these actors necessarily act in bad faith. But each plays a specific role. And together they can sustain a coherent public narrative, long after the operational reality has departed. The natural instinct in treasury is to assess an FI through a financial lens: credit ratings, capital adequacy ratios, liquidity coverage. These are essential, but they are, by nature, retrospective.

It is a bit like checking a patient’s medical history; it tells you where an institution has been, but not necessarily where it is heading. Silicon Valley Bank (SVB) held strong capital measures and failed within days of announcing a capital raise in March 2023. Bear Stearns^[1] traded at $172 a share in early 2007 and $93 as recently as February 2008, weeks before J.P. Morgan acquired it in a rescue deal at $2.

In both cases, traditional financial figures offered treasury teams absolutely no advance warning.

There is now a real risk of a gap opening between a bank’s published figures and its operational reality. Credit Suisse is a prime example^[2]. Moody’s actually upgraded Credit Suisse AG’s Counterparty Risk Assessment to Aa3 in December 2020. It reported stable earnings, while simultaneously accepting that its quietly compounding exposures to failing Archegos Capital Management and Greensill Capital (both collapsed in March 2021) were offset by Credit Suisse’s strong capitalisation. It’s clear that the gap can widen with alarming speed.

What corporate treasurers should now consider is the full institutional picture: governance structures, crisis preparedness, and the quality of relationships between different internal functions. A bank that cannot demonstrate coherent internal co-ordination during a stress event presents an elevated counterparty risk irrespective of its balance sheet.

A compliance colleague reminded me of Credit Suisse’s own Counterparty Oversight Committee actions. It had apparently flagged concerns about Archegos as early as 2020. With no one apparently given ownership of the issues, and no deadlines set, the CEO and Chief Risk Officer reportedly learnt the full extent of the Archegos exposure only days before the fund was forced to shut down. It’s a classic failure of internal communication. In the end, it cost the bank more than $5bn^[3]. Treasurers, who report to the CFO and the board, have a professional, and in many cases legal, duty to look at this wider picture.

TA: Which specific functions within an FI should treasury seek to probe in order to build a more complete picture of its risk profile?

TT: Do not rely on the relationship manager as your one-stop shop. Go higher and broader. Think like a regulator. Ask the questions that usually go unanswered. Start with Risk and Compliance department heads –  not just what the policies say, but how they are actually implemented, by whom, and how that works across different regulatory jurisdictions. I have sat on my fair share of Operational Resilience Committee meetings. The structure alone tells you a great deal about how seriously a bank takes business continuity. Have a conversation with the Head of IT too. Regulators on both sides of the Atlantic have made clear that operational continuity is a systemic issue, not a box-ticking exercise.

Never underestimate communications. A bank that goes silent under pressure, with no clear narrative and no disclosure protocol, will lose stakeholder confidence quickly. That is not a reputational problem. That is a risk event. Make sure Legal and Regulatory are part of the conversation. Then ask yourself whether the FI will actually open those doors for you. If they won’t, that resistance tells you something. Transparency isn’t just about what they tell you. It is about to whom they let you speak.

TA: What are the typical signs of trouble within an FI before anything becomes publicly visible, and where should treasury look for them?

TT: Treasury needs an early warning system, and the discipline to act on it before the story breaks in the press. As Sherlock Holmes said: “It is a capital mistake to theorise before one has data.” Gather the facts first, then draw your conclusions. Not the other way around.

The warning signs are rarely obvious, and that is exactly why so many treasurers miss them. From talking to people inside banks, the pattern is always the same. Things slow down. Straight questions start receiving fuzzy answers. Different, often more junior, people start taking care of your relationship. And at some point you realise you are no longer getting the truth. You are getting a prepared answer.

Operationally, watch for signs of system fragility: extended processing times, unexplained service interruptions, or a reluctance to discuss technology roadmaps. Any of these, in isolation, may mean nothing. As a pattern, they mean something.

Regulatory filings and enforcement records are hiding in plain sight, and most treasurers never look at them. German payment processor and FS provider Wirecard is a textbook case^[4]. The Financial Times (FT) began publishing concerns about Wirecard’s accounting as early as 2015. Whistleblowers followed. Short sellers flagged the discrepancies repeatedly. BaFin, Germany’s own regulator, went after the short sellers instead of the company. The market stayed blind until €1.9bn was declared simply missing in June 2020. The data was there, but nobody joined the dots.

Watch who leaves and when. A batch of senior departures, especially from Risk, Compliance, or Communications, is never coincidental. At Credit Suisse, the CEO went over a spying scandal. Then the Head of Investment Banking. Then the Chief Risk Officer, all against the backdrop of the Archegos losses. Every exit, taken alone, had an explanation. Collectively, they told a story. Treasurers should have been reading it.

A coherent public narrative and a sound institution are not the same thing. Wirecard is a prime example. Their City PR machine successfully reframed serious journalism from my colleagues at the FT as a short-seller attack, and kept regulators and investors convinced for years. I know how these narratives are built. That is precisely why treasury should not take them at face value.

Contagion in FS is never contained cleanly. When SVB collapsed in March 2023, Western Alliance fell 47% and PacWest dropped more than 50% within hours^[5]. Neither had any direct connection to SVB’s vulnerabilities. Stress-test your exposure even to institutions that look untouched. And remember: if a signal requires an explanation, ask for one. If the explanation does not satisfy you, escalate.

TA: What specific questions should treasury be putting to its FI partners, and what should it expect by way of response?

TT: Start with business continuity. Who owns the business continuity plan (BCP) framework, how often is it tested, and what did the last test show? Which systems are critical and when were they last upgraded? A well-run institution answers these without hesitation. Vague responses are data points in themselves.

On cross-border risk, the question is simple: is governance joined up or siloed? A bank operating across multiple jurisdictions under different regulators needs to demonstrate that its chain of command works across borders, not just within them.

Regulatory disclosure is where it gets interesting. Is the FI running an automated, connected framework, or doing it manually, jurisdiction by jurisdiction? That answer alone tells you a great deal. If in doubt, ask directly and watch how they respond. Confidence and clarity under questioning is itself a form of due diligence.

TA: In reality, what is acceptable for treasury to ask, and what is likely to be fairly rebuffed?

TT: Governance, risk management, regulatory compliance: all fair game. Any institution worth its salt should welcome these questions. They are not aggressive. They are professional. A bank that objects to basic due diligence is already telling you something.

What will be resisted, and rightly so, are requests for commercially sensitive or legally privileged information: specific loss figures on individual transactions, details of live regulatory investigations, internal communications. Knowing where that line is before you walk in is key.

How you phrase your questions counts just as much as the questions themselves. Do not treat it like an interrogation, but frame it as a collaborative risk review. Reference their own stated objectives. If you are dealing with a non-UK entity, cultural awareness counts; directness lands differently in different markets. And remember: if an FI is consistently evasive on questions that fall well within normal disclosure, that evasiveness is itself an answer.

TA: How should treasury manage the information it collects, who should it report to internally, and should this become part of formal policy?

TT: Treat it like any other risk data. Document it. Retain it. Give it a clear reporting line. In most cases that means the CFO or Head of Treasury first, with anything material going straight to the board risk committee. And if you are in a regulated sector, check with Legal as there may be formal obligations around retention and reporting that you are not currently meeting.

Formalise the process. Ad hoc assessments executed informally and filed nowhere are a governance gap waiting to become a problem. Build a proper framework, define triggers for review, set clear ownership and a documented escalation path.

The post-mortems on Archegos and the 2023 US banking failures are instructive. In both cases the information existed. The signals had been seen. What was missing was any formal structure for acting on what people already knew. Don’t make the same mistake.

TA: What steps should treasury take if it discovers something it considers a significant risk at an FI partner?

TT: First: don’t act alone. What looks significant may be incomplete or missing context you don’t yet have. Escalate internally to the CFO, legal counsel, and the board if necessary. Get it on the record as a written and factual documentation of what was observed and what it might mean.

If the risk looks material, raise it with the FI, but not through the relationship manager. Go to a governance or compliance contact, and put it in writing. From there it is a judgment call: review your counterparty concentration, consider hedging, or in serious cases begin a managed reduction of exposure.

Keep internal communications disciplined throughout. They need to be factual and proportionate, with no speculation. The moment you start guessing out loud, you have created a different problem.

TA: How should treasury respond when an FI partner becomes the subject of a negative media event?

TT: By being livid, frankly. It throws away everything you have worked to build. But the professional response is to move fast and stay clear-headed.

Any negative coverage, regulatory censure, financial losses, fraud, and leadership change creates an immediate obligation to review. Do not panic. Do not exit positions on the back of a headline. But look closely and seek to separate signal from noise. A measured read is worth far more than a knee-jerk reaction.

Bring your Head of Legal and Communications into the room immediately. Assess the nature of the coverage and its potential implications for the institution’s operational continuity, regulatory standing, and counterparty relationships.

Then secure a briefing call, at the right seniority level, before you are reading managed statements on their website, or worse, seeing “XYZ was contacted for this article but did not respond” in the FT. If they won’t engage at the right level, that is your answer.

Credit Suisse is the example to ponder. As negative coverage built, the cost of insuring the bank’s bonds against default soared to levels not seen since 2008. Counterparties anecdotally reported that meaningful direct communication from the institution was slow, formulaic, and insufficiently senior. The communications response itself became a risk indicator. How an institution communicates in a crisis is one of the most reliable indicators of how well it is actually run. Watch for it from the first hour.

TA: How can treasury ensure it maintains open and productive channels of communication with its FI partners on an ongoing basis?

TT: Counterparty risk assessment is not an annual box to tick. The treasury functions that handle this best treat it as a continuous discipline, embedded in the relationship, not bolted on when things look shaky.

That means building and maintaining senior contacts across the whole of the FI. Not just the relationship manager. It means regular reviews covering risk, regulation, and operational stability, not just transaction reports.

It goes both ways. FIs talk more openly with counterparties they respect. Turn up informed. Ask specific questions. Know the regulatory environment they operate in, especially for multi-jurisdiction institutions. AML rules and anti-bribery compliance may have changed the venue, but the relationship still has to be built somewhere. The conference room and coffee shop has replaced the long lunch. Use it.

The two TMI conferences I attended last year were proof of that. When did you last sit face to face with your key FI contacts?

Every institution I’ve referenced – Wirecard, Credit Suisse, and Silicon Valley Bank – had one element in common: the counterparties caught off-guard had the shallowest relationships. They likely had a single point of contact and only periodic financial statements. There was no cross-functional engagement. By the time the signals were unmistakable, it was already too late.