# Credit risk

`kaal:entity:credit-risk`

**Status.** derived

This node is assembled mechanically from the 6 claims that carry the concept tag `credit-risk`. It is a roster of what the corpus says under this term. It is **not** an adjudicated definition: no single statement here has been ruled canonical, and no first-appearance call has been made. Read the claims and judge for yourself.

## Every claim under this term

6 claims across 5 works, 2016 to 2021.

**2016**

- [2748096-016](https://wulfkaal.github.io/claims/2748096-016) [mechanism/argued] -- Even if the risks hedge funds pose to financial institutions are often overstated, liquidity risk remains a serious issue because of the critical linkages created by over-the-counter credit risk relations.
  > While the risks to financial institutions are often overstated, liquidity risk remains a serious issue due to the critical linkages created by over-the-counter credit risk relations.
  Wulf A. Kaal, Timothy A. Krause, Hedge Funds and Systemic Risk (2016). SSRN: https://ssrn.com/abstract=2748096
- [2811729-009](https://wulfkaal.github.io/claims/2811729-009) [empirical/evidenced] *(failure mode)* -- Average unconstrained mutual fund performance over the three years preceding the study was lower than the return on the ten-year Treasury, and poor performance was often accompanied by high fees and increased credit risk.
  > On average, UMF performance has disappointed over the last three years, with returns lower than the return on the ten-year Treasury.43 Often, poor UMF performance has been accompanied by high fees and increased credit risk.
  Wulf A. Kaal, Unconstrained Mutual Funds and Retail Investor Protection (2016). SSRN: https://ssrn.com/abstract=2811729

**2019**

- [3405660-010](https://wulfkaal.github.io/claims/3405660-010) [failure/argued] *(failure mode)* -- Hedge fund disclosure to counterparties and investors relies on balance sheet concepts that are uninformative about the actual nature of market risk and credit risk exposures.
  > Disclosure by hedge funds to counterparties and investors are often made by using balance-sheet concepts, which are not informative about the nature of the exposures to market risk and credit risk.
  Kaal, Indirect Regulation of Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405660
- [3405660-036](https://wulfkaal.github.io/claims/3405660-036) [mechanism/argued] -- The internal ratings based approach reduces information asymmetry because internal ratings capture supplementary borrower information that external credit assessors cannot reach and cover a broader range of borrowers.
  > internal ratings may incorporate supplementary information about borrowers that is usually beyond the reach of institutions providing external credit assessments, and may cover a much broader range of borrowers
  Kaal, Indirect Regulation of Hedge Funds (2019). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405660
- [3411110-003](https://wulfkaal.github.io/claims/3411110-003) [mechanism/argued] -- Blockchain reduces counterparty credit risk through a specific mechanism: a single shared ledger compresses the settlement cycle so that cash or securities are verifiably in the account within seconds of the trade, leaving almost no window for counterparty default.
  > credit risk is reduced because cash (if selling) or the securities (if purchasing) are in the account for verification shortly after the trade (which could be seconds, if not fractions of a second), because the settlement cycle is substantially reduced.
  Wulf A. Kaal, Samuel Evans, Blockchain-Based Securities Offerings (2019). SSRN: https://ssrn.com/abstract=3411110

**2021**

- [3936876-034](https://wulfkaal.github.io/claims/3936876-034) [mechanism/asserted] -- Credit risk is low in digital asset transactions because the transactions are made instantaneously, which removes the counterparty performance window that generates credit risk in traditional custody.
  > Fortunately, this risk is low in digital asset transactions because transactions are made instantaneously.
  Wulf A. Kaal, Hayley Howe, Custody of Digital Assets (2021). SSRN: https://ssrn.com/abstract=3936876

## Verify

Every claim above resolves to a record carrying a verbatim source quote, the sha256 of the source PDF, and a preformatted citation. Nothing here asks to be taken on trust.

    curl -s https://wulfkaal.github.io/entities/credit-risk.md | sha256sum

**Canonical form.** This markdown file is the canonical hashed representation of this entity node. Its sha256 is the content hash.