International Certificate in Banking Risk and Regulation (ICBRR) v6.0

A credit analyst wants to determine if her bank is taking too much credit risk. Which one of the following four strategies will typically provide the most convenient approach to quantify the credit risk exposure for the bank?

When looking at the distribution of portfolio credit losses, the shape of the loss distribution is ___ , as the likelihood of total losses, the sum of expected and unexpected credit losses, is ___ than the likelihood of no credit losses.

Which one of the following four statements regarding bank's exposure to credit and default risk is INCORRECT?

To manage its credit portfolio, Beta Bank can directly sell the following portfolio elements:

I. Bonds -

II. Marketable loans -

III. Credit card loans -

As DeltaBank explores the securitization business, it is most likely to embrace securitization to:
I. Bring transparency to the bank's balance sheet
II. Create a new profit center for the bank
III. Strategically release risk capital and regulatory capital for redeployment
IV. Generate cash for additional debt origination

After entering the securitization business, Delta Bank increases its cash efficiency by selling off the lower risk portions of the portfolio credit risk. This process ___ risk on the residual pieces of the credit portfolio, and as a result it ___ return on equity for the bank.

Which of the following risk types are historically associated with credit derivatives?

I. Documentation risk -

II. Definition of credit events -
III. Occurrence of credit events

IV. Enterprise risk -

The pricing of credit default swaps is a function of all of the following EXCEPT:

To safeguard its capital and obtain insurance if the borrowers cannot repay their loans,
Gamma Bank accepts financial collateral to manage its credit risk and mitigate the effect of the borrowers' defaults. Gamma Bank will typically accept all of the following instruments as financial collateral EXCEPT?

Except for the credit quality of the Credit Default Swap protection seller, the following relationship correctly approximates the yield on a risk-free instrument:

Which of the following factors can cause obligors to default at the same time?
I. Obligors may be harmed by exposures to similar risk factors simultaneously.
II. Obligors may exhibit herd behavior.
III. Obligors may be subject to the sampling bias.
IV. Obligors may exhibit speculative bias.

After entering the securitization business, Delta Bank increases its cash efficiency by selling off the lower risk portions of the portfolio credit risk. This process ___ return on equity for the bank, because the cash generated by the risk-transfer and the overall ___ of the bank's exposure to the risk.

When a credit risk manager analyzes default patterns in a specific neighborhood, she finds that defaults are increasing as the stigma of default evaporates, and more borrowers default. This phenomenon constitutes

ThetaBank has extended substantial financing to two mortgage companies, which these mortgage lenders use to finance their own lending. Individually, each of the mortgage companies has an exposure at default (EAD) of $20 million, with a loss given default (LGD) of 100%, and a probability of default of 10%. ThetaBank's risk department predicts the joint probability of default at 5%. If the default risk of these mortgage companies were modeled as independent risks, what would be the probability of a cumulative $40 million loss from these two mortgage borrowers?