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Part II Commercial Banking, 7 Credit Risk

From: Gleeson on the International Regulation of Banking (3rd Edition)

Simon Gleeson

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved.date: 30 May 2024

Banks as a lender — Credit risk — Default and credit — Repayment of credit — Debt

This chapter discusses the concept of credit risk. Of all the risks that banks are exposed to, credit risk is the most important and the most intuitively obvious. It is important to remember that credit means more than simply loans. At the heart of financial transactions are credit exposures. For an economist, the function of a bank is maturity transformation and intertemporal transfers of resources. But in a world where debts were always repaid, these functions would be as mechanical as the transmission of water or electricity. It is the unpredictability of credit that differentiates banking from other businesses. The remainder of the chapter covers risk weighting of assets, valuation of exposures, and provisioning and expected loss.

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