Please help with the following problem. Include references in the solution.
According to the Basel II agreement, define credit risk and how you would assess it. Explain why credit scoring helped improve the efficiency of the banking industry?
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Credit risk refers to the risk that borrower may default from his obligations and fail to make payments on the debt which he is obligated to do. Basel II emphasizes the use of external ratings which makes use of rating agencies to assess credit risk. Regulatory authorities also requested financial institutions to use new risk management techniques for both domestic and international lending. Basel II ensures that:
-Capital allocation is more sensitive to risk
-There are more disclosure requirements which allows assessment of capital adequacy of financial institutions
-Credit ...
Solution Summary
The following posting discusses credit risk and explains how one would assess it. It also discusses why credit scoring helped improve the efficiency of the banking industry. References are included along with the solution.
... to earn a good return for the risks that we ... interested in, based on the income and credit scores of the ... in distress, and profits from the high- risk loans were ...
... The only website for getting your free credit report is ... go to any other website, you run the risk of being ... On the other hand, your true FICO score can only be ...
... try to attain in their business loan decisions: 1. minimizing risk to the ...Credit Scoring Model : 1. based on discriminant analysis to calculate a total score...
... with operations in high political risk countries adopt ... that are not offset by home country credits. 10 Therefore, excess credit firms become sensitive to local ...
... Repeated late payments negatively impact credit score. ... The bank now has a greater risk (unknown to them ... The person's credit is now affected negatively, and the ...
... to applicant B. d. we would extend credit to applicants B ... 4. Risks which are unique to Ford are diversifiable. ... 9. Since the risk adjusted discount rate will be ...
... Approval of credit sales by the credit department supports ... is normally used A. when control risk for cash ... bonuses on the basis of short-term operating results. ...
