👉 Credit engineering refers to the process of creating, modifying, or restructuring financial instruments and contracts to manage and mitigate credit risk. It involves designing complex securities, such as collateralized debt obligations (CDOs) and credit default swaps (CDS), to transfer or hedge credit risk from one party to another. By restructuring these instruments, financial institutions can optimize their capital usage, enhance returns, and improve risk-adjusted performance. Credit engineering allows entities to tailor financial products to specific risk profiles and market conditions, but it also carries potential risks, including moral hazard and systemic instability if not managed prudently.
