THE ISSUE AND IMPORTANCE OF CREDIT RISK MANAGEMENT EXEMPLIFIELD BY THE COLLAPSE OF AMERICAN MORTGAGE MARKET

Karolina Przenajkowska
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Karolina Przenajkowska: Nicolaus Copernicus University

Equilibrium. Quarterly Journal of Economics and Economic Policy, 2008, vol. 1, issue 1-2, 113-126

Abstract: The risk is connected to all types of economic activities. It is especially important for the functioning of banks, which are institutions based on the trust of the society. The most common risk banks have to face is the credit risk. The first part of the paper refers to the reasons, classification and consequences of its appearance. Serious negative effects of credit risk existence force banks to design programs of this type of risk management. The credit risk management is founded on the basis of the credit policy established separately in every bank. This policy requires choosing the policy towards the risk. Generally, there are three such policies or strategies: conservative, offensive, and controlled growth. The process of credit risk management in the paper is presented as a division on five elements (risk: identification, assessment, steering, control, financing and administrating). Those issues are particularly important with the international financial crisis observed since August 2007. The origin of the crisis is linked to the collapse of the American mortgage market. The analysis of the reasons behind this collapse is described in the last part of the paper. It shows the points where the most basic rules of the credit risk management were ignored and leaves the question to draw conclusions from for the banks all over the world.

Keywords: credit risk management; American mortgage market (search for similar items in EconPapers)
Date: 2008
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