Regulatory capital for trading book positions includes two components that cover different risks but apply to the same portfolio, one for market risk and one for credit risk. Similar approaches are common in banks’ internal models for economic capital. Although it is known that joint market...

The traditional approach to the stress testing of financial institutions focuses on capital adequacy and solvency. Liquidity stress tests have been applied in parallel to and independently from solvency stress tests, based on scenarios which may not be consistent with those used in solvency...

The subprime crisis revealed that the adoption of suitable systems for the management of credit risk is of utmost concern. The Basel Committee on Banking Supervision (2009) advises banks to use credit portfolio models with caution when assessing the capital adequacy. This paper investigates...

Bank regulators and academics have long conjectured the beneficial effects of smoothing in loan loss provisions (i.e., making higher provisions during good times so as to avoid doing so during bad times) for bank lending and stability, while accounting regulators express concerns about its...

The Current Expected Credit Loss (CECL) framework represents a new approach for calculating the allowance for credit losses. Credit cards are the most common form of revolving consumer credit and are likely to present conceptual and modeling challenges during CECL implementation. We look back at...

The Current Expected Credit Loss (CECL) framework represents a new approach for calculating the allowance for credit losses. Credit cards are the most common form of revolving consumer credit and are likely to present conceptual and modeling challenges during CECL implementation. We look back at...

A continuous-time deterministic model for analytical simulation of impact of the change in yield curve on bank's interest income from a fixed rate loans portfolio is presented. It is considered both differential and integral presentations of equations for dynamics of principal and interest cash...

The paper examines whether bank diversification in multiple dimensions can protect bank lending from uncertainty shocks. We use a panel of Vietnamese commercial banks during 2007 - 2019 for empirical analysis and measure uncertainty in banking by the dispersion of bank-level shocks. Our results...

I show how capital regulations, by imposing a low or zero cost on undrawn credit lines, can lead to ex post misallocation of credit across different borrowers following a market shock. This effect is in addition to the liquidity impact of credit line drawdowns highlighted by previous literature....

The violation of regulatory targets is potentially costly for banks. To the extent that managers have discretion in setting loan loss provisions, they have strong incentives to use provisioning to manage regulatory capital and thereby reduce the costs of violating regulatory minimum targets....