, ®
@GARP
FRM ] Financial Risk Manager
2024
®
EXAM PART II
Credit Risk
Measurement
and Management
@Pearson
,Copyright© 2024, 2023, 2022, 2021 by the Global Association of Risk Professionals All rights reserved.
This copyright covers material written expressly for this volume by the editor/s as well as the compilation itself. It does not
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"Derivatives," "Counterparty Risk and Beyond," "Netting, Close-out and Related Aspects," "Margin (Collateral) and
Settlement," "Central Clearing," "Future Value and Exposure," and "CVA," by Jon Grego ry, reprinted from The xVA
Challenge: Counterparty Credit Risk, Funding, Collateral, and Capital, Fourth Edition (2020), by permission of John Wiley &
Sons, Inc. All rights reserved. Used under license from John Wiley & Sons, Inc.
"Portfolio Credit Risk" and "Structured Credit Risk," by Allan Malz, reprinted from Financial Risk Management: Models,
History, and institutions (2011), by permission of John Wiley & Sons, Inc. All rights reserved. Used under license from John
Wiley & Sons, Inc.
"Introduction to Credit Risk Modelling" and "Credit Scoring and Rating," by Michalis Doumpos, Christos Lemonakis, Dimitrios
Niklis, and Constantin Zopounidis, reprinted from Analytical Techniques in the Assessment of Credit Risk: An Overview of
Methodologies and Applications (2019). Used by permission of Springer Nature
"Estimating Default Probabilities" and "Credit Value at Risk," by John C. Hull, reprinted from Risk Management and Financial
Institutions, Sixth Edition (2023), by permission of John Wiley & Sons, Inc. All rights reserved. Used under license from John
Wiley & Sons, Inc.
"Credit Risk" (excerpted from Chapter 24) and "Credit Derivatives" (excerpted from Chapter 25) of Options, Futures, and
Other Derivatives, Eleventh Edition by John C. Hull (2022), reprinted by permission of Pearson Education, Inc.
"Sovereign Default Risk," by Aswath Damodaran, Country Risk: Determinants, Measures and Implications - The 2022 Edition
(July 5, 2022. Used with permission of Elsevier Inc.
"An Introduction to Securitisation," by Moorad Chaudhry, is reprinted from Structured Credit Products: Credit Derivatives
and Synthetic Securitisation, Second Edition (2010), by permission of John Wiley & Sons, Inc. All rights reserved. Used under
license from John Wiley & Sons, Inc.
"Fundamentals of Credit Risk" and "Governance," by Sylvain Bouteille and Diane Coogan-Pushner, are reprinted from The
Handbook of Credit Risk Management: Originating, Assessing, and Managing Credit Exposures, Second Edition (2021), by
permission of John Wiley & Sons, Inc. All rights reserved. Used under license from John Wiley & Sons, Inc.
"Credit Scoring and Retail Credit Risk Management," by Michel Crouhy, Dan Galai, and Robert Mark, reprinted from The
Essentials of Risk Management, Second Edition (2014), by permission of McGraw-Hill Companies.
"Credit Risk Management," by Hennie van Greuning and Sonja Brajovic Bratanovic, reprinted from Analyzing Banking Risk,
Fourth Edition (2020), by permission of World Bank Group.
"The Evolution of Stress Testing Counterparty Exposures," by David Lynch, reprinted from Stress Testing: Approaches,
Methods, and Applications, Second Edition, edited by Akhtar Siddique and lftekhar Hasan (2019), by permission of lnfopro
Digital Risk (IP) Limited.
"Capital Structure in Banks," by Gerhard Schroek, Risk Management and Value Creation in Financial Institutions (2002), by
permission of John Wiley & Sons, Inc. All rights reserved. Used under license from John Wiley & Sons, Inc.
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@Pearson ISBN 10: 0-13-829215-9
ISBN 13: 978-0-13-829215-7
, Contents
Delegation of Authority 15
Chapter 1 Fundamentals of Credit Committees 15
Credit Risk 1
Setting Limits 16
Oversight 16
What is Credit Risk? 2 Independence 16
Types of Transactions that Create Qualifications 17
Credit Risk 2 Proximity to the Business Unit 17
Open Mind 17
Who is Exposed to Credit Risk?
Corporates 8 Final Words 17
Individuals 10
Why Manage Credit Risk? 10
Chapter 3 Credit Risk
Management 19
Chapter 2 Governance 11
3.1 Establishing Credit Risk
Management Policies 20
Guidelines 12 3.2 Regulatory Policies to
Creation and Approval Process 13 Limit Credit Risk 20
Promulgating and Maintaining Guidelines 13 Large Exposures to a Single Customer or
Content of Guidelines 13 Connected Parties 20
Breach of Guidelines 14 Related-Party Financing 21
Skills 14 3.3 Bank-Specific Policies and
Defining Risk Parameters 14 Actions to Reduce Credit Risk 22
iii
