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Concentration risk
 | This article needs additional citations for verification. (September 2014) |
| Categories of |
| Financial risk |
|---|
 |
| Credit risk |
| Market risk |
| Liquidity risk |
| Investment risk |
| Business risk |
| Profit risk |
| Non-financial risk |
Concentration risk is a banking term describing the level of risk in a bank's portfolio arising from concentration to a single counterparty, sector or country.
The risk arises from the observation that more concentrated portfolios are less diverse and therefore the returns on the underlying assets are more correlated.
Concentration risk is usually monitored by risk functions, committees and boards within commercial banks and is normally only allowed to operate within proscribed limits. It is also monitored by banking regulators and generally attracts a higher capital charge in banking regulation.[1]
- ^ "Concentrations of Credit, Comptroller's Handbook" (PDF). Office of the Comptroller of the Currency. October 2020. Retrieved October 12, 2023.
Each bank should identify, measure, monitor, and control risk by implementing an effective risk management system appropriate for the size and complexity of its operations. When examiners assess the effectiveness of a bank's risk management system, they consider the bank's policies, processes, personnel, and control systems.
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