The challenges of credit risk management in the investment firms in crisis

Abstract

The global financial crisis has given rise to legislative activity on the international level, with the adoption of numerous legal regulations, in order to improve the ability of financial participants, among others, investment firms to absorb losses arising from economic and financial stress situations. Credit risk is one of the dominant risk in the finance and business of investment firms, and consequently, the exposure to credit risk is present in almost all financial transactions. Therefore, the paper points out that the application of adequate methods of credit risk management can contribute to the liquidity of investment firms, as well as preserving the stability of the financial market, taking into account frequent financial market shocks caused by numerous internal and external factors. In this regard, the aim of this research is to indicate how the application of the adopted international standards contributes to reducing the exposure of the investment firms to credit risk. Finally, the research of the legal regime of credit risk management in investment firms, using the normative and comparative method, provides us with a basis for critical review and analysis of national regulation in this field.