Nine Elements of Credit Approval for Cash Portfolios

Abstract

In this research commentary, we offer a behind the scenes look at the credit approval process for cash investment portfolios. We discuss nine essential components to help clarify a process that can sometimes seem mysterious and intimidating.

1. Beyond Ratings – What Makes Cash Unique
2. The Credit Universe – It’s All About Supply
3. Preliminary Screening – Compliance and Common Sense
4. Macro Analysis – The Panoramic View
5. CAMELS – The Fundamental Process
6. Internal Ratings Systems – A Scorecard Concept
7. Final Credit Approval – A Group Exercise
8. Monitoring and Surveillance
9. Credit Event Response – Risk Mitigation

Introduction

For some treasury practitioners, the credit approval process for cash investment portfolios can be mysterious and intimidating. In day-to-day operations, they often make credit decisions, directly or indirectly, about their investments solely based on credit ratings. In the post-2008 era, a deeper understanding of the credit process is essential for cash investments, even if one uses outside managers such as money market funds. In this research commentary, we explain nine essential elements in the credit approval process for a cash portfolio.
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