The risk of the loan is spread out over lots of investors lending small amounts.
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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The worst mistakes of this crisis were arguably made in relatively simple areas of retail and commercial banking from the concentration of risk in the corporate-loan book of HBOS to Wachovia's kamikaze acquisition of Golden West, a Californian lender stuffed full of mortgage-shaped grenades.
One winning model, submitted by the Entrepreneurial Finance Lab, was a low-cost screening tool lenders can use to evaluate the risk of a potential SME loan without requiring the traditional evidence for creditworthiness that all too many entrepreneurs especially women lack.
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.
As a result of these conditions, we stand at the precipice of a yawning Soviet version of our domestic savings and loan crisis, where the high risk of doing business in the Soviet Union is transferred through a slight of hand called "government guarantees" from private entrepreneurs, shareholders and depositors (where it properly belongs) onto the shoulders of the beleaguered American taxpayer.
It also says the three ignored the warnings of a company risk officer that the underwriting practices and marketing strategy of matching competitors' offers to subprime and option loan borrowers was substantially increasing risk in the portfolios.
And since the assets you've pledge would be worth considerably more than the loan, that risk of the so-called counterparty collapsing isn't worth taking.
Today your local bank might be interested in lending to a start-up business but tomorrow it will be less inclined because carrying that kind of loan increases its risk.
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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.
And because the EFSF bears the first losses, its capital is at greater risk of being wiped out than under a loan programme.
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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And the regulators invented the Basel system of risk-weighted capital ratios, which stipulates different leverage ratios for different categories of loan, in theory to take account of the riskiness of those loans.
It was that we turn a corner away from the type of excessive risk-taking that got us into having to ask the taxpayers to loan banks hundreds of billions of dollars.
It has established ground rules for extending credit to help it manage credit risk, and closely monitors the performance of its loan portfolio.
How many hedge funds refuse to reserve sufficiently for potential litigation and repurchase risk for breaches of warranties and representations in their loan portfolios?
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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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First, under the Basel system that allows big banks with "advance" status to set their own evaluations of the riskiness of different categories of loan - the so-called risk weights - there is not enough consistency in how much capital different banks hold to cover similar risks.
By offering insurance on mortgages, the FHA is taking some of the financial risk off of the shoulder of a mortgage lender like Deutsche Bank which might not want to offer loan to just anyone.
The IMF should be urged to embark on a study, much like that conducted in January 2008, of loan conditions focused on security-related risk considerations.
Looking at Pipeline Risk, which is the ratio of CRE loans to CRE loan commitments, 4, 479 community banks have a Pipeline of 80% or higher, which is 58.5% of all FDIC-insured financial institutions.
They are particularly interested in covering the extended loan customers, who are the most at risk of being upended by short term borrowing.
Beyond the at-risk names reviewed above, managers say the broad population of leveraged loan issuers is in good shape after 10 successive quarters of muscular cash-flow growth since the recession ended in June 2009.
Overexposure to construction and development loans: The first guideline states that if loans for construction, land development and other land are 100% or more of total risk capital, the institution is considered to have loan concentrations above prudent risk levels, and should have heightened risk management practices.
But protesters argue the loan is putting a masterpiece at risk for the sake of a commercial event.
"The borrower gets a low interest rate, commensurate with the interest of a conforming loan, and the bank mitigates its risk to some degree, " said Laurie Stewart, the bank's president and CEO.
Sounds good, but it lives or dies based on how good these folks are at measuring specific risk, and how well ZestCash manages its own costs of managing discerning loan officers who only work over the telephone.
But selling non-core assets and reducing loan loss risk and the reserves for potential losses was ostensibly part of their federal bailout deal.
Analysts have welcomed the IMF loan as a vote of confidence in Brazil which would cut the risk of contagion from neighbouring Argentina's economic problems.
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