James Adams is a Senior Analyst at Sageworks, a leading provider of credit risk management, loan loss reserve and stress testing software to financial institutions.

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At the same time, ever more layers of securitisation have separated the original lender or broker of a loan from the ultimate bearer of credit risk.

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It has established ground rules for extending credit to help it manage credit risk, and closely monitors the performance of its loan portfolio.

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But even if a liquid market in such securities could be created, it would still rely on banks with experienced loan officers to assess the credit risk of small firms.

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These days, though, banks demand bigger down-payments and better credit scores to lessen the risk of having to buy back a delinquent loan from Fannie Mae and Freddie Mac, the now government-controlled agencies that securitise and guarantee most residential mortgages.

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Lenders are required to disclose credit scores to consumers if they are used to assess the risk of a loan applicant.

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Santander has staffed its Latin American operations with its own credit-risk specialists, who veto any loan that offers less than a risk-adjusted return of 20% a year.

ECONOMIST: Latin America