Limit Utilization
From Open Risk Manual
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Definition
Limit Utilization is a quantitative indicator of the degree to which a measured Exposure is within or exceed a set Risk Limit
Considerations
When considering the review of a Limit framework the following considerations apply[1]
- The risks resulting from full utilization of a firm's limits should not compromise the financial condition of the firm
- One should analyse the percentage of limit utilization over time
- Excessively large limits in relation to normal risk levels and limit usage can fail to convey meaningful shifts in risk-taking activity and can fail to trigger a formal evaluation process
- Conversely, overly restrictive limits that are frequently exceeded may undermine the purpose of the limit structure
References
- ↑ Risk Management of Financial Derivatives, Comptroller’s Handbook 1997
