Credit concentration risk eba

  • How can credit concentration risk be reduced?

    How to mitigate concentration risk

    1. Slowly liquidate your shares
    2. Minimize your portfolio risk by hedging your holdings
    3. Use covered calls
    4. Explore the potential of exchange funds
    5. Create a charitable remainder trust
    6. Gift highly appreciated assets to charity

  • What is bank concentration risks?

    Concentration risk is a banking term describing the level of risk in a bank's portfolio arising from concentration to a single counterparty, sector or country.
    The risk arises from the observation that more concentrated portfolios are less diverse and therefore the returns on the underlying assets are more correlated..

  • Credit concentration risk arises as a result of credit portfolio having a skewed distribution of exposures across different segments.
    The segments may for instance consist of certain industries, geographical regions or correspond to individual counterparties.
  • Different concentrations of the same size may represent very different levels of risk.
    Although 25 percent of capital remains the threshold for capturing concentrations for regulatory purposes, concentration risk management should be commensurate with the risk that a pool of loans represents.
  • The PRA defines it as 'the risk of losses arising as a result of concentrations of exposures due to imperfect diversifications'.
risk concentration within the credit risk. The guidelines are EBA publishes peer review on the implementation of credit concentration risk guidelines.

Should credit concentration risk be defined in internal risk management systems?

The large exposures requirements of the CRD may be a useful starting point, but may not, in themselves, be sufficient for institutions to define their own internal risk management systems for credit concentration risk

13 in particular risks associated with large indirect credit exposures (e

g to a single collateral issuer)17 Guideline 7

What are the EBA guidelines on exposures to shadow banking entities?

62

In line with the EBA Guidelines on limits on exposures to shadow banking entities (EBA/GL/2015/20), the institution is expected, as part of its risk identification approach, to identify its exposures to shadow banking entities, all potential risks arising from those exposures, and the potential impact of those risks

What is a concentration risk assessment?

107

The review and assessment of institutions exposure to concentration risk and concentration risk management, including management mitigative actions is a part of the overall assessment of an institutions’ risk and business profile, as well as its compliance with the CRD and other regulatory requirements

Concentration risk refers not only to risk related to credit granted to indi- vidual or interrelated borrowers, but to any other significant interrelated asset or liability expo- sures which may threaten the soundness of a credit institution.The EBA guidelines place responsibility on financial institutions to monitor their own concentration risks "on a micro level". Regulators should monitor concentration risk at the sector level, "on both a micro and macro level".These Guidelines follow a holistic approach which aims at ensuring sound overall concentration risk management; this means that institutions are expected to identify and assess all aspects of concentration risk, moving further away from the traditional analysis related only to intra-risk concentration within the credit risk.

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