Fundamentals of credit - lecture #1

Published on April 27, 2016   30 min

Other Talks in the Series: Hot Topics

My name's Marwa Hamman and I'm the Executive Director of the Cambridge Master of Finance program. I also lecture on credit. I've developed a course called Fundamentals of Credit, which I teach here on the MFin program and another course that covers more advanced topics. Today's talk is looking at credit. Credit as an asset class, but also the skill set and the toolkit required to analyze credit from a qualitative as well as a quantitative perspective.
So before getting into the specifics of credit instruments and credit risk, I'd like to start by setting the stage, perhaps, by starting with a big picture on how credit is generated and the banking space and regulatory pressures in general. Banks are intermediaries between depositors and investors. They have an important role to play in creating money in the economy. By creating money or extending credit in the form of loans to their clients, they are naturally taking on credit risk. In order to offset that risk, banks are required to set aside reserves to ensure that they are sufficiently capitalized and that those reserves are commenced with a level of risk within the loans that they have extended. Loans constitute one of the largest elements of the asset side of any typical commercial bank's balance sheet. On the next slide, I will be showing you a sample balance sheet where you'll see that they can go up to about two-thirds of the size of the assets book.