#USBankingCreditRisk Credit risk is the possibility that borrowers, whether consumers or corporations, fail to meet their payment obligations, resulting in a financial loss for U.S. banks. This risk is fundamental to the stability of the sector. Banks manage it meticulously through the assessment of creditworthiness (using credit ratings and risk models), setting aside reserves to cover potential losses (\text{Provisions for credit losses}), and diversifying their loan portfolios to avoid concentration in a single sector or type of borrower. Effective management is key to profitability.

​The health of the U.S. economy directly influences credit risk. During times of economic expansion and low unemployment, defaults tend to be low. Conversely, during recessions or financial crises, risk increases dramatically as businesses face difficulties and unemployment reduces households' ability to pay. Interest rates are also a crucial factor: if they rise, the cost of servicing debt increases, putting more pressure on borrowers and consequently raising the risk for banks.

​Regulators, such as the Federal Reserve (Fed), play a vital role. They impose strict capital requirements and conduct stress tests (like SCAP) to ensure that banks can absorb significant credit losses without jeopardizing their solvency. Transparency and regulatory compliance are essential. The ultimate goal is to protect depositors and maintain the stability of the financial system by ensuring that banks uphold prudent lending practices and adequate capital levels in the face of credit risk volatility.