Banking Terms - Monday, November 21, 2011 23:51 - 0 Comments

What is Credit Risk?

Credit risk (aka default risk) relates primarily to the quality of a banks assets.  Assets of a bank have varying risk with loans having the highest default rates.  Loan quality is based on risk grading scales (credit grades) that vary from bank to bank.  The grading system measures the risk the borrower will default.  A grade of one is safest loan and is typically cash secured loans.  Loan grades are assigned upon origination and may be downgraded/upgraded during the life of the loan.  Different types of loans possess different risk, ranging from essentially risk-free cash secured loans to unsecured loans with the highest risk.