This paper suggests a model based on Poisson processes to estimate joint credit losses without the limitations of normality assumptions and non-negative correlation. Idiosyncratic and systematic risks are seen as “shocks” and defaults are driven by a latent variable (loans' lifetimes). The...

Asset encumbrance is a central concept in the context of banks’ liquidity crises, as it is associated with their capacity to obtain secured funding. This occasional paper summarises the work carried out by the task force on asset encumbrance, bringing together analyses by the ECB and those...

With a sample of twelve US bond indices spanning different maturities, credit ratings and industry sectors, we investigate the impact of new bank capital regulation for trading portfolios introduced by Basel III. Specifically, we estimate the new capital requirements for (a) liquidity risk and...

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

This paper illustrates channels by which regulations that require banks to hold liquid assets can either increase or decrease a bank's incentive to take risk with its remaining ineligible assets. A greater capacity to respond to liquidity stress increases the potential profits a bank would put...

This study investigates whether banks and insurance corporations perform regulatory arbitrage by buying bonds with inflated credit ratings. We argue that credit rating based capital requirements incentivize banks and insurance corporations to hold more bonds with inflated credit ratings. We...

This paper examines the relationship between banks' observed credit default swap (CDS) spreads and possible measures of systemic importance. We use five-year CDS spreads from Markit with an international sample of 71 banks to investigate whether market participants are giving them a discount on...

Most credit portfolios contain obligor concentration risk and yet international bank regulatory capital rules and many industry models assume perfect diversification. Multiple methods are available to calculate the approximate capital needs of a concentrated credit portfolio, but many of these...

Prudential regulation of infrastructure investment plays an important role in creating an enabling environment for mobilizing long-term finance from institutional investors, such as insurance companies, and, thus, gives critical support to sustainable development. Infrastructure projects are...

In this paper we review the pricing and model calibration of Credit Default Swaps referring to both the International Swaps and Derivatives Association (ISDA) CDS contract and credit model standardization guidelines. Furthermore we provide an Excel pricing workbook to supplement the materials...