We present a macro variable-based empirical model for corporate bank loans’ credit risk. The model captures the well-known positive relationship between probability of default (PD) and loss given default (LGD; i.e., the inverse of recovery) and their counter-cyclical movement with the business...

Building on the work of Sorge and Virolainen (2006), we revisit the data on aggregate Finnish bank loan losses from the corporate sector, which covers the ‘Big Five' crisis in Finland in the early 1990s. Several extensions to the empirical model are considered. These extensions are then used...

​We model banks' loan losses with a panel of European countries for the period 1982–2012 using three country-specific macro variables: output growth shocks, real interest rates, and a measure of excessive private sector indebtedness. We find that a drop in output has an intensified impact on...

We model banks' loan losses with a panel of European countries for the period 1982-2012 using three country-specific macro variables: output growth shocks, real interest rates, and a measure of excessive private sector indebtedness. We find that a drop in output has an intensified impact on...

Basel III has introduced a non-risk-weighted leverage ratio requirement (LRR) which complements the internal ratings based (IRB) capital requirements. It provides a backstop against model risk which arises if some loans get incorrectly rated and become toxic. We study the effects of the LRR on...