Trade Credit and Risk Management

CHAPTER 2

Application of Credit Risk Measures to Internal Processes

Introduction

Credit risk parameters are instrumental to the convergence of the capital financiers need to hold and the losses suffered by creating a risk-oriented organization, but the effectiveness of the reduction of the misalignment is strongly affected by the application to a broad range of internal processes, as required by the Basel Capital Accords to obtain regulatory capital relief.

First, credit risk parameters can be applied to originate new exposures apart from the considered portfolio (see Credit Risk Origination section). Then, to align ex ante and ex post risk exposure, the credit risk parameters are applied to define limits and monitoring and select the exposures ...