Credit enhancement

CFA Level I Glossary

Credit enhancement is structural protection that absorbs losses before senior investors are hit. Common forms include subordination, overcollateralization, excess spread, and reserve accounts. Enhancement improves the credit profile of senior tranches relative to the underlying pool. A trap is assuming enhancement eliminates all credit risk rather than shifting and absorbing it within the structure.

Sign up free — get all 175 CFA Level I terms, flashcards & rank tracking →

More CFA Level I terms

KomFi: Test Prep Made Easy

KomFi: Test Prep Made Easy — free adaptive practice for GMAT, GRE, SAT, ACT, National Real Estate Exam, Investment Banking, and finance with full explanations.

KomFi Academy is free GMAT prep and personalized GMAT help built as a training platform: 77,980+ practice questions, 26,500+ flashcards, on-demand video lectures, podcasts, and 4K slide decks. Flagship tracks: Free GMAT Prep, Free GMAT Resources, National Real Estate Exam Prep, Investment Banking Prep, Finance Prep, GRE, SAT, ACT, LSAT, MCAT, Financial Accounting, Private Equity, Private Credit, and Quantitative Finance.

Free GMAT Prep & Personalized GMAT Help

What's inside

Topics

View pricing · Read testimonials