Credit and Concentration Risk
See the exposures that threaten capital before they do, especially the concentrations that hide in a growing book.
Our view
A loan or asset book rarely fails one credit at a time. It fails through concentration: too much exposure to one sector, one geography, or one kind of borrower, all of it moving together when the cycle turns. The danger is that concentration builds quietly inside a growing, healthy-looking book. The work is to see it before it bites, surfacing the exposures that genuinely threaten capital and putting limits around them while there is still room to act.
When this is the work
When the book has grown faster than its controls.
Geographic or sector concentration is building, or an examiner has flagged credit risk. We surface what threatens capital and put limits around it.
- A loan or asset book has outgrown its controls
- Geographic or sector concentration is building
- An examiner has flagged concentration or credit risk
The Ore to Edge Discipline
The same three-phase discipline on every engagement, adapted to the demands of this work. See the full discipline.
Assay and refine
- Partner: understand the book, its exposures, and their correlations
- Collect: the credit cycle and the geographic and sector macro
- Filter: the concentrations that genuinely threaten capital
The concentrations that genuinely threaten capital, named
Alloy and form
- Model credit and concentration scenarios, including reverse stress tests
- Set limits and a capital buffer against them
- Plan the mitigations
Limits and a capital buffer sized to the real exposure
Forge and hone
- Stand up concentration monitoring and reporting
- Re-run scenarios on a change in regime
Early warning on concentrations before they cost you
What you get
Concentrations seen before they bite.
- A concentration and credit-risk assessment
- Limits and a capital view
- Exam-ready monitoring
Common questions
Credit and Concentration Risk, in plain terms.
What is concentration risk?
The risk that comes from too much exposure to a single sector, geography, borrower, or type of asset, so that one downturn hits a large share of the book at once. It can build unnoticed inside a book that looks healthy loan by loan.
How is concentration risk different from credit risk?
Credit risk is the chance any single borrower defaults. Concentration risk is the chance that many exposures go bad together because they share a common driver. A book can hold sound individual credits and still be dangerously concentrated.
Why do examiners focus on concentrations?
Because concentration is a frequent cause of bank stress and failure, especially in commercial real estate and single-sector lending. Examiners want to see that you measure it, limit it, and hold capital against it.
How do you measure it?
By mapping exposures and their correlations, modeling credit and concentration scenarios including reverse stress tests, and testing what a downturn in a given sector or geography would do to capital. The point is to quantify the exposure, not just name it.
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