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We study the design of stress tests that provide information about aggregate and idiosyncratic risk in banks’ portfolios and impose contingent capital requirements. In the optimal static test, an adverse scenario fails all weak and some strong banks, limiting the stigma of failure. Sequential...
Persistent link: https://www.econbiz.de/10011800551
We extend the model presented in Bonollo et al. by introducing a multiscenario framework that allows for a richer and more realistic specification, including non-static (stochastic) probabilities of default and losses given default. Though more complex from a computational point of view, the...
Persistent link: https://www.econbiz.de/10013159300
The Basel deadlines concerning the second pillar and the international crisis have emphasized the problem of a reliable measure of the credit concentration risk. Nevertheless, there is not yet a best practice and several approaches have been proposed. After a survey about the framework, the...
Persistent link: https://www.econbiz.de/10013149093
The traditional approach to the stress testing of financial institutions focuses on capital adequacy and solvency. Liquidity stress tests have been applied in parallel to and independently from solvency stress tests, based on scenarios which may not be consistent with those used in solvency...
Persistent link: https://www.econbiz.de/10012828230
M-PRESS-CreditRisk is a new top-down macro stress testing framework that can help supervisors gauge banks' capital adequacy related to credit risk. For the first time, it combines calibration of microprudential capital requirements and macroprudential buffers in a unified, coherent framework....
Persistent link: https://www.econbiz.de/10011663208
To date, macroprudential policy inspired by the Basel III package is applied irrespective of the network characteristics of the banking system. We study how the implementation of macroprudential policy in the form of additional capital requirements conditional to systemic-risk measures of banks...
Persistent link: https://www.econbiz.de/10012309202
We present a stochastic simulation forecasting model for stress testing that is aimed at assessing banks’ capital adequacy, financial fragility, and probability of default. The paper provides a theoretical presentation of the methodology and the essential features of the forecasting model on...
Persistent link: https://www.econbiz.de/10011890804
Recently, banking literature has had a quest for appropriate pricing of bank loans under the new Basel II rules and has been in pursuit of possible outcomes for undertaking such credit risk. In this paper, we propose a simplified formula to price bank's corporate loans, aiming at making bank...
Persistent link: https://www.econbiz.de/10014224548
The traditional loans pricing methods are usually based on risk measures of individual loan's characteristics without considering the correlation between the defaults of different loans and the contribution of individual loans to the entire loan portfolio. In this study, using account-level...
Persistent link: https://www.econbiz.de/10012175768
Bank regulators consider minimum capital standards essential for promoting well-functioning banking systems. Despite their existence, however, such standards have been insufficient to prevent periodic disruptions in the banking sectors of various countries. The most recent disruption was the...
Persistent link: https://www.econbiz.de/10012962826