Credit risk is the risk that a counter party will not settle an obligation for full value when due. In relation to wholesale payments and securities settlement systems, credit risk can take several forms and have multiple sources. Two of the most important sources, customer daylight overdrafts and settlement risks (including settlement lags, principal risk, and loss-sharing provisions), are discussed below. These forms of credit risk, as well as other forms of credit risk, should be appropriately monitored and managed. Information technology is often critical to such controls.
Customer Daylight Overdrafts