Читать книгу Non-financial Risk Management in the Financial Industry - Группа авторов - Страница 23

Our definition of financial risk is based on the enumeration of all included individual financial risk types. For the purposes of this book, the three financial risk types included in the definition of financial risk are credit risk, market risk and liquidity risk.

The BCBS defines credit risk as “the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms.”[30] For the purpose of risk quantification and the calculation of capital requirements, credit risk is separated into three main risk parameters. Those used to measure credit risk are probability of default (PD), loss given default (LGD) and the exposure at default (EAD). When all these parameters are estimated, their product equals the expected loss (EL), which can either be viewed on an individual loan, a customer or a portfolio level. However, the expected loss as such does not pose credit risk to a bank, as it is required to hold risk provisions for expected losses. The actual credit risk here is the risk of unexpected losses, or the deviation from the expected loss. This risk needs to be covered by banks by holding sufficient capital against potential unexpected losses, as specified by regulatory capital requirements.

Market risk, according to the BCBS, is defined as “the risk of losses in on and off-balance-sheet positions arising from movements in market prices.”[31] In contrast to credit risk, which is a pure downside risk, market price movements also include the possibility of gains instead of losses.

Liquidity risk as defined by the BCBS contains two components: funding liquidity risk and market liquidity risk.

“Funding liquidity risk is the risk that the firm will not be able to meet efficiently both expected and unexpected current and future cash flow and collateral needs without affecting either daily operations or the financial condition of the firm. Market liquidity risk is the risk that a firm cannot easily offset or eliminate a position at the market price because of inadequate market depth or market disruption.”[32]