Managing the credit risk inherent to a corporate credit line is similar to that of a term loan, but with one key … difference. For both instruments, the bank should know the borrower's probability of default (PD) and the facility's loss given … default (LGD). However, since a credit line allows the borrowers to draw down the committed funds according to their own needs …

their financial risks and assign economic capital. These efforts have been recognized and encouraged by bank regulators; for … as by the IIF (1998) and ISDA (1998), argue that credit risk models should also be used to determine risk … accuracy of the model's forecasts of credit losses. A serious impediment to such model validation is the small number of …

Since bank credit lines are a major source of corporate funding and liquidity, we examine the determinants of credit … line usage with a database of Spanish corporate credit lines. A line's default status is the primary factor driving its … usage, which increases as a firm approaches default. Several lender characteristics suggest an important role for bank …