Credit risk is the risk of loss resulting from an obligor’s inability to meet its obligations. Generally speaking, credit risk is the largest source of risk facing banking institutions. For these banks, sound management involves measuring the credit risk at portfolio level to determine the amount of capital they need to hold as a cushion against potentially extreme losses. In practice, the portfolio risk is often measured by Value at Risk, which is simply the quintile of the distribution of portfolio loss for a given confidence level. With the Basel II accords, financial regulators aim to safeguard the banking institutions’ solvency against such extreme losses.

From a bank’s perspective, a high level of credit risk management means more than simply meeting regulatory requirements: the aim is rather to enhance the risk/return performance of credit assets. To achieve this goal, it is essential to measure how much a single obligor in a portfolio contributes to the total risk, i.e. the risk contributions of single exposures. Risk contribution plays an integral role in risk-sensitive loan pricing and portfolio optimization.

CCG Catalyst will examine on and off-balance sheet credit exposures to borrowers and counterparties; we aggregate and assess portfolio risks and examine the adequacy of loan loss reserves. We assess: large exposures and credit concentration risks; risks from securitizations and complex credit derivatives; and counterparty risks, such as rollover and wrong-way risks and will assess and implement economic capital allocation programs.