Which of the following statements is FALSE concerning credit risk?[Fill in the blank]

Question

BlackTom AI · Accepted Answer

Concentrating loans with a few counterparties raises concentration risk and therefore increases, not decreases, credit risk — so option (a) is false.

1) Relevant knowledge points:
- Credit risk (default risk) is the risk that a borrower or counterparty fails to meet contractual obligations (principal/interest).
- Diversification reduces idiosyncratic credit risk: spreading exposures across many independent borrowers lowers the chance that many defaults occur simultaneously.
- Concentration risk arises when exposures are large relative to capital or clustered by borrower, sector, or geography; it increases the potential loss from a single default or correlated defaults.
- Prudential regulators such as APRA require banks to have risk-management policies, but regulatory oversight and policies mitigate risk; they do not convert an inherently risk-increasing practice into one that decreases risk.

2) Reasoning step-by-step:
- Statement (a) claims concentration of loan exposures on a few counterparties decreases credit risk. By definition, concentrating exposures increases potential loss if one counterparty defaults, so concentration raises credit risk.
- The clause noting APRA requires appropriate policies is true as a regulator’s requirement, but the existence of policies does not negate the increased risk from concentration. Policies reduce but do not reverse the direction of risk from concentration.

3) Calculations:
- No numeric calculation is required; this is conceptual. Conceptually: portfolio loss variance falls with diversification; concentration increases variance and potential loss.

4) Why the correct answer is correct:
- Option (a) directly contradicts the fundamental diversification principle. Concentration amplifies exposure to individual defaults, so the statement that concentration decreases credit risk is false.

5) Why other options are correct:
- (b) True: credit risk occurs when borrowers can’t repay on time.
- (c) True: credit risk increases when exposures are concentrated.
- (d) True: credit risk is the risk of counterparty default and is often the largest risk for financial intermediaries.

Conclusion: Option (a) is the false statement, confirming the provided answer.

Which of the following statements is FALSE concerning credit risk?[Fill in the blank]单项选择题

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