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Credit Risk plus four… defined

Bankers talk about, and write about, risk. One of the most influential journals is the Risk Management Association Journal.

Here is a concise definition from an April 2007 article on “What We Know, Don’t Know and Can’t Know About Bank Risk: A View form the Trenches” written by Til Schuermann and Andrew Kuritzkes.

  1. Market risk, or the earnings impact associated with adverse price movements in the bank’s principal trading positions;
  2. Credit risk, or the potential for losses due to the failure to pay of credit counterparties;
  3. Structural Asset/liability risk, or the earnings impact from shifts in interest rates on the bank’s asset and liability positions;
  4. Operational risk, or (BCBS 2005, §644) “the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events”; and
  5. Business risk, or the potential for losses from residual sources of non-financial earnings volatility.

They categorize the first three as financial risks and the last two as non-financial risks.

The entire paper is 58 pages long. If you are new to banking and want to do some self-study, it will expand your thinking beyond the transactional level of credit risk.

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.