How is credit risk assessed by the FDIC?

The assessment of credit risk by the FDIC focuses on the likelihood of borrower defaults. This is crucial because credit risk pertains to the risk that a borrower may not repay a loan or meet contractual obligations. When evaluating a bank's financial health, the FDIC looks closely at the quality of the bank's loan portfolio, including the creditworthiness of borrowers. Factors such as the borrower's credit history, repayment capabilities, and current economic conditions are analyzed to determine the likelihood of default. This allows the FDIC to evaluate potential losses that could stem from defaults, which helps in assessing the overall risk and soundness of the financial institution.

In contrast, evaluating potential interest rates primarily relates to market risk rather than credit risk. Marketing strategies and customer satisfaction surveys also do not directly address the borrower's ability to repay loans and thus are not relevant to credit risk assessment.