Concentration Risk Analysis:

A Better Basis for Concentration Risk Management

Traditional credit risk management minimizes concentration risk by restricting segment size based on arbitrarily set notional exposure limits as opposed to controlling equity capital exposure. This approach often results in a disastrous misallocation of capital, as it does not integrate the potential of true risk of capital loss.

PortfolioView™ relies on appropriate economic capital as a basis for concentration risk, and in turn, provides a better basis for concentration risk management. Our analysis of the bank's portfolio based on true capital risk exposure, results in an optimal allocation of the portfolio between segments. Moreover, the PortfolioView™ approach accounts for diversification benefits due to correlation between segments.
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