By employing Moody’s corporate default and rating transition data spanning the last 90years we explore how much capital banks should hold against their corporate loan portfolios to withstand historical stress scenarios. Specifically, we will focus on the worst case scenario over the...

In the current low interest rate environment, the possibility of a sudden increase in rates is a potentially serious threat to financial stability. As a result, analyzing interest rate risk (IRR) is critical for financial institutions and supervisory agencies. We propose a new method for...

We propose a new method for analysing multi-period stress scenarios for portfolio credit risk more systematically than in current macro stress tests. The plausibility of a scenario is quantified by its distance from an average scenario. For a given level of plausibility, we search systematically...

Tracing the SEC ban on the short selling of financial stocks in September 2008, this paper investigates whether such selling activity before the 2008 short ban reflected financial companies’ risk exposure in the subprime crisis. Evidence suggests that short sellers sold short stocks that had...

We employ a comprehensive data set and a variety of methods to provide evidence on the magnitude of large banks’ funding advantage in Canada in addition to the extent to which market discipline exists across different securities issued by the Canadian banks. The banking sector in Canada...

We conduct a thorough analysis on the role played by the unobserved systematic risk factor in default prediction. We find that this latent factor outweighs the observed systematic risk factors and can substantially improve the in-sample predictive accuracy at the firm, rating group, and...

The current economic climate makes understanding credit risk correlation particularly important. After allowing for a comprehensive set of observable firm-specific, industry, market, and macroeconomic factors, there is an economically significant co-movement in credit default swap spreads that...