Study Notes: Crouhy, Chapters 9 & 12

Crouhy, The Essentials of Risk Management, Chapters 9 & 12 contains 39 pages covering the following learning objectives:

Chapter 9: Credit Scoring and Retail Credit Risk Management

* Analyze the credit risks and other risks generated by retail banking.
* Explain the differences between retail credit risk and corporate credit risk.
* Discuss the “dark side” of retail credit risk and the measures that attempt to address the problem.
* Define and describe credit risk scoring model types, key variables, and applications.
* Discuss the key variables in a mortgage credit assessment and describe the use of cutoff scores, default rates, and loss rates in a credit scoring model.
* Discuss the measurement and monitoring of a scorecard performance including the use of cumulative accuracy profile (CAP) and the accuracy ratio (AR) techniques.
* Describe the customer relationship cycle and discuss the trade-off between creditworthiness and profitability.
* Discuss the benefits of risk-based pricing of financial services.

Chapter 12: The Credit Transfer Markets—and Their Implications

* Discuss the flaws in the securitization of subprime mortgages prior to the financial crisis of 2007.
* Identify and explain the different techniques used to mitigate credit risk, and describe how some of these techniques are changing the bank credit function.
* Describe the originate-to-distribute model of credit risk transfer and discuss the two ways of managing a bank credit portfolio.
* Describe the different types and structures of credit derivatives including credit default swaps (CDS), first-to-default puts, total return swaps (TRS), asset-backed credit-linked notes (CLN), and their applications.

After reviewing the notes you will be able to apply what you learned with practice questions & answers.

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