We study the implications of the value at risk concept for the bank's optimum amount of equity capital under credit risk. The market value of loans is risky and lognormally distributed. We show that the required equity capital depends upon managerial and market factors. Furthermore, the bank's...

In the last decade, stress tests have become indispensable in bank risk management which has led to significantly increased requirements for stress tests for banks and regulators. Although the complexity of stress testing frameworks has been enhanced considerably over the course of the last few...

Various economic theories are available to explain the existence of credit and default cycles. There remains empirical ambiguity, however, as to whether or these cycles coincide. Recent papers_new suggest by their empirical research set-up that they do, or at least that defaults and credit...