What is DIRECT CREDIT RISK?

The RISK of loss due to DEFAULT by a COUNTERPARTY on a direct extension of credit, such as a LOAN or DEPOSIT. Default on an unsecured direct credit risk transaction always results in a loss for the credit provider; this is in contrast to a situation involving TRADING CREDIT RISK, where the value of the contract may be in favor of the counterparty at the time of default. A subcategory of CREDIT RISK. See also CONTINGENT CREDIT RISK, CORRELATED CREDIT RISK, SETTLEMENT RISK, SOVEREIGN RISK.

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