This paper presents a quantitative framework for assessing and managing concentration risk in credit portfolios, emphasizing its importance to sound risk management, especially during periods of market stress. It explains how new concentration risks can emerge across industries and geographies and why understanding their impact is critical. The approach combines stand‑alone credit risk with correlation characteristics to evaluate both single‑name and segment concentration within loan portfolios. By decomposing a portfolio’s economic capital, the framework helps institutions understand how concentration levels affect overall risk, supporting more informed capital allocation, diversification strategies, and proactive portfolio management.

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