1. Explain how the credit portfolio approach is reflected in the calculation of regulatory and economic capital.
2. Hypothetical Bank Ltd's credit portfolio comprises only two customers. Customer A is a large dominant player in a non-cyclical food industry while Customer B is a conglomerate with multiple business interests. The credit portfolio manager of Hypothetical Bank argues that although there is some concentration risk, it is fully mitigated by the non-cyclicality of Customer A and the well diversified nature of Customer B. Do you agree? Explain your views.