using dynamic factors from a large panel of selected macroeconomic and financial data as well as common unobserved risk …

. At the transition point there is a jumpin risk taking, as private banks do not internalize the social costs of bank … failure. To discourage private risk taking, the politician leaves more rentsto private banks.We conclude with some suggestive …

movements in default probabilities and default correlations. Our findings have important implications for portfolio credit risk … analysis. First, a static analysis of portfolio credit risk can underestimate credit risk significantly by not accounting for … without accounting for time variation may lead to misspecified risk management models. We highlight the main effects in an …

We study the effect of going-concern contingent capital on bank risk choice. The possibility of debt for equity … conversion forces deleveraging in highly levered states, when risk incentives are worse. The additional equity reduces endogenous … risk shifting by diluting returns in high states. An optimally designed trigger and convertible debt amount trades off this …

Dynamic models for credit rating transitions are important ingredients for dynamic credit risk analyses. We compare the … properties of two such models that have recently been put forward. The models mainly differ in their treatment of systematic risk … switching models are employed for dynamic credit risk management. As a side result of our analysis, we obtain indirect evidence …