Showing 21 - 27 of 27
The accounting standards of the International Financial Reporting Standards (IFRS) and the United States Generally Accepted Accounting Principles (US-GAAP) require from financial institutions to consider multiple macroeconomic scenarios when calculating loan loss provisions. At present, however,...
Persistent link: https://www.econbiz.de/10012824881
Validating the discriminatory power of a rating system is not trivial: the underlying default probabilities that determine the discriminatory power change over time due to changes in the macroeconomic environment and the credit portfolio. This paper presents a methodology using Basel II's...
Persistent link: https://www.econbiz.de/10012913939
This paper proposes two methodologies that are designed to test whether observed default rates are in line with default probabilities applied within the Basel framework. This is done by integrating the one-factor model of the Basel framework into the score and the order test statistic. The first...
Persistent link: https://www.econbiz.de/10012913948
Accounting standards require that financial institutions must measure default risk with respect to the full maturity of a financial instrument. This requires forecasting of future default probabilities. The forecast of future default probabilities concerns two aspects: forecasting macroeconomic...
Persistent link: https://www.econbiz.de/10013405518
Accounting standards require from financial institutions to consider and forecast multiple macroe- conomic scenarios when calculating loan loss provisions. Loan loss provisions protect a financial institutions against losses. But how to determine objectively the number of scenarios and to...
Persistent link: https://www.econbiz.de/10013405621
Financial institutions and rating agencies routinely monitor the discriminatory power of credit ratings so that potential weaknesses are detected early. This article presents an empirical study, that shows that the higher the level of default rates, the lower the expected discriminatory power of...
Persistent link: https://www.econbiz.de/10013405832
Credit ratings are expert systems which assess the likelihood of a borrower to default. The Basel Accord allows banks to base regulatory capital requirements on the default probability of a rating. Banks must prove that the employed default probabilities are valid estimates. Since in credit risk...
Persistent link: https://www.econbiz.de/10013405833