154. Competent authorities should assess credit risk arising from all banking book exposures (including off-balance sheet items). They should also assess the counterparty credit risk and the settlement risk.
155. In assessing credit risk, competent authorities should consider all the components that determine potential credit losses, and in particular: the probability of a credit event (i.e. default), or correlated credit events, that mainly concerns the borrowers and their ability to repay relevant obligations; the size of exposures subject to credit risk; and the recovery rate of the credit exposures in the event of borrowers defaulting. For all these components, competent authorities should take into account the possibility that these components may deteriorate over time and worsen compared to expected outcomes.