We develop new measures to detect income falsification on mortgage applications during the housing bubble. We find that regulators failed to prevent income falsification. Additionally, regulatory requirements imposed on Fannie Mae and Freddie Mac (the “GSEs”) to promote lending in...

I develop a structural model of mortgage demand and lender competition to study how leverage regulation affects the equilibrium in the UK mortgage market. Using variation in risk-weighted capital requirements across lenders and across mortgages with differential loan-to-values, I show that a...

This study examines the speed of adjustment of the leverage and regulatory capital ratios between 2002 and 2018 for large commercial banks of the USA. The study applies a two-step system GMM technique to obtain the speed of adjustment. The results prove that higher-quality capital requires...

We use a panel data set of large listed European banks to evaluate the effect of the usage of internal ratings-based (IRB) models on bank opacity. We find that a more intensive implementation of these models is associated with lower absolute forecast error and disagreement among analysts about...

Credit risk is an important issue in many finance areas, such as the determination of cost of capital, the valuation of corporate bonds and pricing of credit derivatives. Credit risk has also been a cause and consequence of the current financial crisis. Thus, methods for measuring credit risk,...

Interest rates are one of the main risk factors for insurance companies. Both assets and liabilities react to the movement of interest rates. Therefore, it is essential to have an adequate model of interest rates for Solvency II applications. Here, we address some of the existing issues under...

Over the past few days, alarm bells have been ringing for the risk of recession in the world’s leading economies (Germany, United Kingdom, Italy, Brazil and Mexico). Deceleration is affecting several regions in the world and might even become more widespread, exacerbating investor mistrust and...

The paper argues that it would be natural to replace the standard normal distribution function by the logistic function in the regulatory Basel II (Vasicek's) formula. Such a model would be in fact consistent with the standard logistic regression PD modeling approach. An empirical study based on...

The majority of industry credit portfolio risk models, as well as recent scientific results, are based on isolated modules for default probabilities and recoveries in the event of default. This paper shows that these common methods lead to various econometric drawbacks when the parameters are...

A major topic in empirical finance is correlation of default risk. Correlations are the main drivers for credit risk on a portfolio basis and for banks' capital requirements under the New Basel Accord. However, empirical evidence on the magnitude of correlations is rather scarce, mainly due to...