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Credit Risk Mitigation – Other Types of Mitigant

While collateral remains a common form of credit risk mitigation (CRM), it is not always suitable in every situation. Lenders and regulatory authorities have come to recognize the usefulness of alternative mitigation techniques.

 

This course examines other CRM tools and techniques that are used by banks and other lenders. It begins by describing the use of netting, which – like collateral – is a type of funded CRM technique. The course then describes the use of a number of unfunded credit risk mitigants, namely guarantees/standby letters of credit, credit insurance, and credit derivatives. Finally, the course looks at the eligibility of the various CRM techniques for lowering capital requirements under the Basel framework.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Describe the different types of credit risk mitigation (other than collateral) that can be used to reduce credit risk exposure

  • COURSE OUTLINE

    Topic 1: Other Types of Mitigant

    Netting

    o Payments (Settlement) Netting

    o Netting by Novation (Replacement Netting)

    o Close-Out Netting

    o Netting Example

    Guarantees

    o Guarantors

    o Guarantees vs. Standby Letters of Credit

    Letters of Comfort

    Credit Insurance

    o Domestic

    o Cross-Border (Export Credit Insurance)

    o Benefits & Risks

    Credit Derivatives (Credit Default Swaps)

    o Benefits & Risks

    Credit Risk Mitigants & Basel III

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    50 Minutes

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