Classification and Quantification of Credit Risk

Abstract

As noted in Chapter 3, proper governance and control require a firm to identify, measure, manage, and monitor variables that represent uncertainty or risk to the normal functioning of operations. This is especially true in the financial industry, where the essence of the business is to reward an institution for risks it assumes. The effective management of risks is typically accomplished through a framework that lets an institution control the different risks inherent in its line of businesses; this allows potential losses to be managed to firmwide tolerance levels and profits to be maximized.