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If Bank A's assets are better diversified than Bank B's, then Bank A's credit risk charge...

If Bank A's assets are better diversified than Bank B's, then Bank A's credit risk charge calculated as a percentage of the sum of its risk-weighted assets (as in Basel I) is lower than Bank B's

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Answer #1

The Statement is True

Diversifications refers to the act of diversifying the assets or risk of the firm in the different assets so that overall risk of the firm decreases and the risk charge refers to the chance of losses due to the poor credit quality of the assets.

There are various weightage of risk associated to different assets like exposure to sovereign is given 0% risk weight and some assets are given 20%, 50% etc. which reduces the credit risk exposure thus, it can lead to better diversification and reducing the percentage of the sum of its risk-weighted assets (Bank A) as compared to (Bank B)

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