Counterparty Credit Risk arises in derivatives, securities lending, repurchase agreements, and other bilateral financial transactions where performance extends over time. Unlike traditional credit risk, it depends on market movements that affect the contract's value and the likelihood of default occurring before maturity. The 2008 financial crisis highlighted this risk when Lehman Brothers' collapse left counterparties with massive unrealized losses on derivatives. Financial institutions manage this risk through credit limits, collateral agreements, netting arrangements, and central clearing for standardized derivatives. Basel III introduced the Credit Valuation Adjustment to capture potential losses from counterparty credit deterioration.