Although this chapter is primarily concerned with credit risk, there are other types of risk that the financial industry faces. Some of these risk types are:

• Operational risk: Risk emanating due to failure in processes, systems, and errors caused by human intervention. For example, transactions being credited to incorrect accounts due to the absence of adequate checks, or a system upgrade to the core banking system failing, thereby preventing customers from accessing their accounts.
• Market risk: Risk arises due to dramatic and adverse movements in market prices. Both the on-and off-balance sheet positions are vulnerable to factors that affect the overall performance of financial markets in which the firm is involved. It is also at times referred to as systematic risk. For example, a market that the organization is exposed to is suddenly faced with currency controls, an expected high interest rate movement catches the financial markets off-guard, or persistent high inflation significantly erodes the value of money.
• Liquidity risk: Risk arising when a financial institution may be unable to meet its short-term debt obligations. Such a risk happens when some of the assets cannot be sold at a fair market price. For example, as part of the sub-prime mortgage crisis, home owners found that there were no buyers for their houses at the valuation on which they took out mortgages. In a stock exchange meltdown scenario, the range of bid-ask spread increases to such a high level that many securities find no buyers. This leads to a liquidity crisis.
• Reputation risk: Risk arising due to the conduct of the financial institution. This could include the erosion of the brand's reputation, leading to the risk spreading to the bottom line and capital adequacy position. For example, a run on the bank due to any adverse rumor may lead to high withdrawals, thereby leading to a capital adequacy crisis.

One of the reasons credit risk management has taken center stage in the financial world is due to the Basel norms. Let's look at the history of these norms and how they have shaped the credit risk environment.