chapter  4
10 Pages

Risk Considerations at U.S. Banks

WithRaúl L. Madrid

The banks hired large numbers of risk analysts to run risk analysis systems and tried to insulate them from the pressures of the lending process. The country risk analysts had many solid reasons for concluding that the middle and upper income developing countries were creditworthy. The banks’ country risk evaluations, however, were based on the premise that international economic conditions would remain relatively favorable—an assumption that would prove fatally flawed. Before 1970, US banks evaluated country risk in an informal and haphazard manner. The real growth in the banks’ country risk analysis systems coincided with the dramatic expansion of developing country lending that began in 1973. By the mid-1970s, almost all of the US banks with a significant amount of international business had established formal country risk analysis systems that they continued to refine through the rest of the decade and into the 1980s.