Basel Framework International regulatory standards for banks
Basel Committee on Banking Supervision
Basel Accords
Basel I
Basel II
Basel III
LCR
NSFR
FRTB
Basel 3.1
Background
Banking / Regulation
Monetary policy / Central bank
Risk / Risk management
Pillar 1: Regulatory capital
Capital requirement
Capital ratio
Leverage ratio
Tier 1
Tier 2
Credit risk
SA-CR
IRB
F-IRB
A-IRB
EAD
SA-CCR
IMM
CCF
Market risk
Standardized
IMA
CVA vol
BA-CVA
SA-CVA
Operational risk
Basic
Standardized
AMA
Pillar 2: Supervisory review
Economic capital
Liquidity risk
Legal risk
Pillar 3: Market disclosure
Disclosure
Business and Economics Portal
v
t
e
Credit risk is the possibility of losing a lender holds due to a risk of default on a debt that may arise from a borrower failing to make required payments.[1] In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased collection costs. The loss may be complete or partial. In an efficient market, higher levels of credit risk will be associated with higher borrowing costs. Because of this, measures of borrowing costs such as yield spreads can be used to infer credit risk levels based on assessments by market participants.
Losses can arise in a number of circumstances,[2] for example:
A consumer may fail to make a payment due on a mortgage loan, credit card, line of credit, or other loan.
A company is unable to repay asset-secured fixed or floating charge debt.
A business or consumer does not pay a trade invoice when due.
A business does not pay an employee's earned wages when due.
A business or government bond issuer does not make a payment on a coupon or principal payment when due.
An insolvent insurance company does not pay a policy obligation.
An insolvent bank will not return funds to a depositor.
A government grants bankruptcy protection to an insolvent consumer or business.
To reduce the lender's credit risk, the lender may perform a credit check on the prospective borrower, may require the borrower to take out appropriate insurance, such as mortgage insurance, or seek security over some assets of the borrower or a guarantee from a third party. The lender can also take out insurance against the risk or on-sell the debt to another company. In general, the higher the risk, the higher will be the interest rate that the debtor will be asked to pay on the debt.
Credit risk mainly arises when borrowers are unable or unwilling to pay.
^"Principles for the Management of Credit Risk – final document". Basel Committee on Banking Supervision. BIS. September 2000. Retrieved 13 December 2013. Credit risk is most simply defined as the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms.
Creditrisk is the possibility of losing a lender holds due to a risk of default on a debt that may arise from a borrower failing to make required payments...
Sovereign creditrisk is the risk of a government becoming unwilling or unable to meet its loan obligations,[citation needed] as happened to Cyprus in...
how the market views creditrisk of any entity on which a CDS is available, which can be compared to that provided by the Credit Rating Agencies. Most...
A credit rating is an evaluation of the creditrisk of a prospective debtor (an individual, a business, company or a government), predicting their ability...
assessed the buyer's creditrisk – i.e. that the applicant will be able to pay for the goods – it will issue the letter of credit, meaning that it will...
main risks faced by banks include: Creditrisk: risk of loss arising from a borrower who does not make payments as promised. Liquidity risk: risk that...
financial risk types, which are sorted into the five categories market risk, liquidity risk, creditrisk, business risk and investment risk. The four...
exposure to the risk of not getting their money back (credit default), banks will tend to issue large credit sums to those deemed credit-worthy, and also...
risk management is the practice of protecting economic value in a firm by managing exposure to financial risk - principally operational risk, credit risk...
Political risk analysis providers and credit rating agencies use different methodologies to assess and rate countries' comparative risk exposure. Credit rating...
investment, the bond credit rating represents the credit worthiness of corporate or government bonds. It is not the same as an individual's credit score. The ratings...
development, production, or sustaining of life-cycles), legal liabilities, creditrisk, accidents, natural causes and disasters, deliberate attack from an adversary...
banks and credit card companies, use credit scores to evaluate the risk of lending money to consumers. Lenders contend that widespread use of credit scores...
evaluate each customer's credit history before extending credit. That task is now performed by the banks which assume the creditrisk. Extra turnover is generated...
I, operational risk was negatively defined: namely that operational risk are all risks which are not market risk and not creditrisk. Some banks have...
field of finance, a wrong way risk (WWR) occurs when credit exposure to a counterparty is negatively correlated with the credit quality of that counterparty...
A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratings, which rate a debtor's ability to pay back debt by...
Consumer creditrisk (also retail creditrisk) is the risk of loss due to a consumer's failure or inability to repay (default) on a consumer credit product...
based on risk-based pricing, a form of price discrimination based on the different expected risks of different borrowers, as set out in their credit rating...
a credit derivative refers to any one of "various instruments and techniques designed to separate and then transfer the creditrisk" or the risk of an...
Financial risk arises from uncertainty about financial returns. It includes market risk, creditrisk, liquidity risk and operational risk. In finance, risk is...
The Journal of CreditRisk is a quarterly peer-reviewed academic journal covering the measurement and management of creditrisk, including the valuation...
countries with less stable economies are usually considered of higher risk. International credit rating agencies provide ratings for each country's bonds. Bondholders...
of a bank's capital. It is expressed as a percentage of a bank's risk-weighted credit exposures. The enforcement of regulated levels of this ratio is intended...
corporations, such as banks and financial firms, are subject to creditrisk, depending on the credit-worthiness of the issuer. Those issued by the U.S. Treasury...
particularly on credit and market risk, and in banks, through regulatory capital, includes operational risk. Creditrisk is the risk of default on a debt...
Global Information