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Tag Archives: mortgage

Liquidity risk

Banks are usually funded with relatively liquid, short-term deposits which are lent out long term as loans. Loans are inherently illiquid. Companies and individuals rarely borrow unless they have a financing need. Banks face the risk that a large portion of their depositors will demand their funds back at the same time. Management has to [...]

Credit risk

Credit risk is the risk that a counterparty that owes, or potentially owes, a bank money fails to meet its obligations. For most commercial banks this is the most important risk to manage and price. A triple-A US company, such as General Electric, has very different risk characteristics than a small manufacturing company in an [...]