Define credit risk

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The Basel III capital accord comprises a framework of three pillars. Pillar 1 established the minimum capital required by a commercial bank and incorporates three risk components: credit risk, operational risk and market risk.

Problem (a) Define credit risk. (Extended Learning A)

Problem (b) What approaches may be used to measure the credit risk capital adequacy component of Pillar 1?

Problem (c) Using the standardised approach to credit risk, explain how a commercial bank will use this method to calculate its minimum capital requirement.

Reference no: EM133011552

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