A comprehensive guide to credit risk management The Handbook of Credit Risk Management presents a comprehensive overview of the practice of credit risk management for a large institution. It is a guide for professionals and students wanting a deeper understanding of how to manage credit exposures. The Handbook provides a detailed roadmap for managing beyond the financial analysis of individual transactions and counterparties. Written in a straightforward and accessible style, the authors outline how to manage a portfolio of credit exposures--from origination and assessment of credit fundamentals to hedging and pricing. The Handbook is relevant for corporations, pension funds, endowments, asset managers, banks and insurance companies alike. Covers the four essential aspects of credit risk management: Origination, Credit Risk Assessment, Portfolio Management and Risk Transfer. Provides ample references to and examples of credit market services as a resource for those readers having credit risk responsibilities. Designed for busy professionals as well as finance, risk management and MBA students. As financial transactions grow more complex, proactive management of credit portfolios is no longer optional for an institution, but a matter of survival.
Preface Acknowledgments Part I: Origination Chapter 1: Fundamentals of Credit Risk What is Credit Risk? Types of Transactions that Create Credit Risk Who is Exposed to Credit Risk? Why Manage Credit Risk? Chapter 2: Governance Guidelines Setting Limits Authorizing Transactions Staffing Final Words Chapter 3: Checklist for Origination Does the Transaction Fit Into My Strategy? Does the Risk Fit into My Existing Portfolio? Do I Understand the Credit Risk? Does the Seller Keep an Interest in the Deal? Are the Proper Mitigants in Place? Is the Legal Documentation Satisfactory? Is the Deal Priced Adequately? Do I Have the Skills to Monitor the Exposure? Is There an Exit Strategy? Final Words Part II: Credit Assessment Chapter 4: Measurement of Credit Risk Exposure Default Probability The Recovery Rate The Tenor Direct vs. Contingent Exposure The Expected Loss Chapter 5: Dynamic Credit Exposure Long-Term Supply Agreements Derivative Products The Economic Value of a Contract Mark-to-Market Valuation Value-at-Risk (VaR) Chapter 6: Fundamental Credit Analysis Accounting Basics A Typical Credit Report Agency Conflict, Incentives, and Merton's View of Default Risk Final Words Chapter 7: Alternative Estimations of Credit Quality The Evolution of an Indicator: Moody's Analytics EDF(t); Credit Default Swap Prices Bond Prices Final Words Chapter 8: Securitization Asset Securitization Overview The Collateral The Issuer The Securities Main Families of ABS Securitization for Risk Transfer Credit Risk Assessment of ABS Warehousing Risk Final Words Part III: Portfolio Management Chapter 9: Credit Portfolio Management Level 1 Level 2 Level 3 Organizational Set-Up and Staffing The IACPM Final Words Chapter 10: Economic Capital and Credit Value at Risk (CVaR) Capital: Economic, Regulatory, Shareholder Defining Losses: Default vs. Mark-to-Market Credit Value at Risk or CVaR Creating the Loss Distribution Active Portfolio Management and CVaR Pricing Final Words Chapter 11: Regulation Doing Business with a Regulated Entity Doing Business as a Regulated Entity How Regulation Matters: Key Regulation Directives Final Words Chapter 12: Accounting Implications of Credit Risk Loan Impairment Loan Loss Accounting Regulatory Requirements for Loan Loss Reserves Impairment of Debt Securities Derecognition of Assets Consolidation of VIEs Accounting for Netting Hedge Accounting Credit Valuation Adjustments, Debit Valuation Adjustments and Own Credit Risk Adjustment IFRS 7 Final Words Part IV: Mitigation and Distribution Chapter 13: Mitigating Derivative Counterparty Credit Risk Measurement of Counterparty Credit Risk Mitigation of Counterparty Credit Risk through Collateralization Legal Documentation Dealers vs. End-Users Bilateral Transactions vs. Central Counterparty Clearing Prime Brokers Repurchase Agreements Final Words Chapter 14: Structural Mitigation Transactions with Corporates Transactions with Special Purpose Vehicles Chapter 15: Credit Insurance, Surety Bonds and Letters of Credit Credit Insurance Surety Bonds Letters of Credit or LoCs The Providers' Point of View Final Words Chapter 16: Credit Derivatives The Product The Settlement Process Valuation and Accounting Treatment Uses of CDS CDS for Credit and Price Discovery CDS and insurance LCDS, Indexes, MCDS and ABSCDS Chapter 17: Collateral Debt Obligations or CDOs What are CDOs? Collateralized Loan Obligations or CLOs Arbitrage CLOs Balance Sheet CLOs ABS CDOs Credit Analysis of CDOs Final Words Chapter 18: Bankruptcy What is Bankruptcy? Patterns of Bankrupt Companies Signaling Actions Examples of Bankruptcies Final Words Conclusion About the Authors Index
