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3.4 Contractual aspects of legal risk
An examination of contractual aspects of legal risk is important because, fundamen-
tally, the business of a credit institution can be analysed as a series of contracts. In all
likelihood, operational risk will be embedded into each one of them. The probability
of future legal risk is highly influenced by:
䊏 The clauses in the contract with the counterparty, and
䊏 The credit risk and market risk assumed by each party.
New laws may bring up new contractual risks. The Gramm–Leach–Bliley Act of
1999, which repealed the Depression-era prohibition against combining commercial
and investment banking, could ...