Explanation:
Retail credit risk involves a large number of small, independent exposures. Thus, retail portfolios are typically highly diversified (Option A), and an individual default is rarely large enough to threaten the bank's solvency (Option B). Additionally, behavioral scoring is a key component in retail banking, meaning a change in customer behavior often signals an impending default (Option C). On the other hand, corporate credit risk is characterized by larger, less uniform exposures where an unexpected level of credit loss due to concentration risk is a dominant factor (Option D). Therefore, Option D describes corporate credit risk rather than retail credit risk.
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603.1. Retail exposures include the following: credit cards, installment loans (e.g., personal finance, educational loans, auto loans, leasing), revolving credits (e.g., overdrafts, home equity lines of credit), and residential mortgages. Each of the following tends to be a stronger feature of retail credit risk rather than corporate credit risk EXCEPT which is more typical of corporate credit risk?
A
Portfolio tends to behave like a well-diversified portfolio is normal markets
B
Default by a single customer is never expensive enough to threaten a bank
C
A rise in defaults is often signaled in advance by a change in customer behavior
D
Portfolio risk is dominated by risk that credit losses will rise to unexpected level due to concentrations of exposures