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CREDIT SCORING AND RETAIL CREDIT RISK MANAGEMENT1

This chapter examines credit risk in retail banking, an industry that is familiar to almost everyone at some level. Once seen as unglamorous compared to the big-ticket lending of corporate banking and trading, retail banking has been transformed over the last few years by innovations in products, marketing, and risk management.

Retail banking has proved particularly important to the financial industry in the postmillennium years. On the positive side, retail businesses provided growing, relatively stable earnings in the early years of the millennium. However, poorly controlled subprime lending in the U.S. mortgage market provided the fuel for the disastrous failures of the U.S. securitization ...

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