Schroeck, Chapter 5: Capital Structure in Banks Study Notes cover the following learning objectives:
* Evaluate a bank’s economic capital relative to its level of credit risk
* Identify and describe important factors used to calculate economic capital for credit risk: probability of default, exposure, and loss rate.
* Define and calculate expected loss (EL).
* Define and calculate unexpected loss (UL).
* Estimate the variance of default probability assuming a binomial distribution.
* Calculate UL for a portfolio and the risk contribution of each asset.
* Describe how economic capital is derived.
* Explain how the credit loss distribution is modeled.
* Describe challenges to quantifying credit risk.
After reviewing the notes you will be able to apply what you learned with practice questions and answers.
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