Re-assignment and consolidation of credit authorizations

When a customer is granted several credit lines with different risk levels, the bank usually stipulates an authorization for each credit line and a total authorization; moreover authorizations are sometimes given for sets of credit lines. The purpose of the paper is, given a set of credit lines with corresponding authorizations, and a customer's current credit utilizations, to find new utilizations of greatest risk to the bank, within the credit authorization limits and with regard to the current utilizations. These new utilizations, used as re-assigned authorizations enable the bank to assess the risks relative to residual commitment and possible overstepping for each credit line. Furthermore these risks can be aggregated over a set of customers for each credit line. An algorithm has been developed to compute these re-assigned authorizations; it is based on classical linear programming methods. This paper describes this algorithm and recommends its use to consolidate risks.