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A credit executive at a major American financial institution is concerned about the risks associated with the bank's extensive holdings in retail credit. The executive has tasked a group of risk specialists with evaluating these hazards and is seeking their recommendations on strategies to mitigate the adverse effects of retail credit risk on the portfolio.
A
Focus the extension of credit on low default portfolios such as mortgages or large corporations.
B
Concentrate on expected loss estimation since systematic risk factors such as a real estate crisis or a sharp economic downturn can be diversified away.
C
Monitor the effectiveness of credit risk assessment tools for retail customers and adjust the tools as needed.
D
Use stress tests to analyze the exposure to idiosyncratic risk factors of every single retail credit customer.