Credit risk

decent interest on their deposits are institutional or corporate depositors. Billett, Garfinkel, and O 'Neal (1998) evidenced that whenever there is an increase in risk, banks raise more funds from insured deposits for their operations and as a result of that the market punish the banks by increasing the cost of funding for such banks. The researcher also finds that banks that are downgraded rely more on insured deposits and the justification was that bank managers perceive the increased in cost

the lowering down of lending standards by the financial institutions, which led to mortgage lending being offered to less credit worthy customers. Further, another significant factor which contributed to the U.S housing bubble were the affordable lending policies adopted by the government in the early 1990s which encouraged or rather forced the lending institutions to offer credit exposure to the communities and neighbourhoods with low and moderate incomes. Therefore, one can notice that there

covered if the bank 's assets were liquidated. A bank must hold enough capital to protect lenders and depositors from losses and also allow the bank to meet its customer requirements. Banks must maintain capital levels equal with the amount of risks

default risk, the portfolio would need to hold a minimum of 1,000 issuers in total! Instead, the fund manager should aim to hold a minimum of 200 issuers to maximize yield and protect against both market risk (through smart sector and geographic construction) and idiosyncratic risk from any particular issuer (through smart issuer and issue selection). 14 | Buy and Maintain: A “smarter” approach to credit portfolio management INVESTMENT INSIGHTS Buy and Maintain: A “smarter” approach to credit portfolio

Credit Risk: Countrywide Financial Corporation All in all, it is very true that risk are an inherent part of business. Thereby looking at the various types of risk, many entities are impacted by all types of risk. A company representative of credit risk are that I find to exhibit credit risk is Countrywide Financial Corporation. Essentially, this company displayed much credit risk especially disbursing loans at the expense of the borrowers. In general, Countrywide was known for their slick advertising

Chapter 1 1.1 Background of the study: Credit Risk Grading is an important tool for credit risk management as it helps a Bank to understand various dimensions of risk involved in different credit transactions. Credit Risk Grading Manual of Bangladesh Bank was circulated by Bangladesh Bank vide BRPD Circular No. 18 dated December 11, 2005 on Implementation of Credit Risk Grading Manual which is primarily in use for assessing the credit risk grading before a bank lend to its borrowing clients.

③ Options Options are traded both on exchanges and in the over-the-counter market. There are two types of option which are call option, giving the holder the right to buy the underlying asset by a certain date for a certain price, and put option, giving the holder the right to sell the underlying asset by a certain date for a certain price, while both the counter-parties only have obligations (usually the speculators). Apart from that, depending on the expiration date, American options can be exercised

option. The credit derivative is a new type of financial derivative which is based on the credit condition of the loan developed in the 1990s, and its function is to separate the credit risk from other risks of the primary assets and transfer it to the counterparty. Also, credit derivatives can make credit risk appear in a more fluid and tradable form, which has a great application in improving the portfolio of returns and presenting a highly structured risk portfolio. Meanwhile, credit derivatives

THE AIG BAILOUT 945 loan.4 Government aid has since grown to $182.5 billion,5 and as recently as June 2009 AIG’s stock traded at less than $1.00 per share.6 AIG’s collapse was caused largely by its $526 billion portfolio of credit default swaps (CDSs), a type of credit derivative widely used by financial institutions but, up until recently, largely unknown by the general public.7 AIG’s troubles have been covered extensively by the media but are difficult to comprehend fully because of the esoteric

role in the erosion of relationship between banks and their clients played the global financial crisis and attendant scandals. As the result, clients have diversified their relationships and spread their business across various firms to manage the risk. Moreover, the clients demand better services and are not willing to pay a premium. To rebuild trust among clients, public and regulatory, investment banks must focus on their ultimate target