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?
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 ...
... Item 1A. Risk Factors ... Such risks and matters could significantly and adversely affect the ... price, quality, service, location, reputation and credit availabil- ity ...
... a larger safety stock given the associated risk. ... customers or liberalizing the trade credit terms will ... The risks involved largely result from the increased ...
... Banks didn't distinguish between the credit risks presented by ... paid the same prevailing rates for credit cards. As a result, lower risk customers, in effect ...
...Risk Factors ... Such risks and matters could significantly and adversely affect the Company's ... price, quality, service, location, reputation and credit availability ...
... Item 1A. Risk Factors ... Such risks and matters could significantly and adversely affect the ... price, quality, service, location, reputation and credit availabil- ity ...
...score, anyone that has filed for bankruptcy will experience greater difficulty securing loans and credit cards. What's more, to make up for the increased risk...
... with diverse services offering: banking, credit cards, loans ... in purchasing just to diversify risks, reduce borrowing ... Disadvantages: There may be risk of loosing ...
... Bid Credits: 4 Deadline: March 8, 2006, 7:02 pm EST. ... Complete the survey or use the risk management tools ... things done right, things done wrong, risks missed, etc ...
