Acharya, V.

, 92

Actuarial models of credit risk

, 51–52

Additional Tier 1 Capital

, 135

Adopt time-varying capital

, 182

Aggregate leverage of big banks

, 2

ALCO. See Asset/Liability Committee (ALCO)

Allen, F.

, 25

Allen, M.

, 115

ALM. See Asset liability management (ALM)

Altman, E. I.

, 41, 42

Altman’s Z-score

, 41

Artzner, P.

, 51

Assess banking sector vulnerability

, 93–95

Asset-backed commercial paper financing

, 23

Asset-based lending

, 30

Asset/Liability Committee (ALCO)

, 106

Asset liability management (ALM)

, 61, 106–113

Asset liability mismatch

, 65

Asset prices

, 120–122

Asset quality ratio, limitations of

, 87–88

Audits

, 11

Automated rating approach

, 206

Balance sheet

analysis of banks

, 107

assessment

, 114–116

repair

, 113

shrinkage

, 182–183

strategies for interest rate risk management

, 78

Bank

activities

, 11

based financial system

, 4, 11

business model and financial stability

, 20

investment banks

, 21–22

non-interest income

, 21

sources of banks’ income

, 20–21

dealing with failing

, 187

financial, operational and environmental risks impacting on

, 9–10

financial stability risk assessment in

, 29

funding structure of

, 14–15

higher capital requirements on

, 183–185

income, sources of

, 20–21

internal and external sources of risks to

, 26–27

liquidity creation

, 16

market concentration and risk

, 22

ratios

, 87

regulation of

, 129–130

risk management

, 24–26

safety nets for

, 181

systematic approach to financial stability risk assessment in

, 24

Banking business inherently risky

, 2–3

Banking sector

, 3–5

asset quality

, 87

crisis

, 120–122

measures to Bolster financial stability in

, 13–23

risk assessment

, 10–11

risk maps for

banking stability map

, 102–103

financial stability risk map

, 101–102

Banking soundness index

, 103

Basel Committee on Banking Supervision (2015)

, 2

Basel I, 1988 basel capital accord

, 130

Basel II

, 14, 130–131

Basel III

, 14, 16

bail-in bonds under

, 142

for banks

, 140–142

capital conservation buffer

, 135

components of

, 133–134

countercylical capital buffer

, 135–136

important financial institution surcharge under

, 139

regulation of banks

, 129–130

risk-weighting of assets under

, 139–140

Basel III Monitoring Report 2015

, 2

Beck, T.

, 22

Bernanke, B.

, 120

Better bank business models

, 15

Binary variables

, 4

Black, F.

, 48

Black-Scholes formula, for volatility

, 6

Blundell-Wignall. A.

, 92

Board of directors

, 11

Bologna, P.

, 19

Bolster financial stability, in banking sector

bank market concentration and risk

, 22

bank’s business model and financial stability

, 20

investment banks

, 21–22

non-interest income

, 21

sources of banks’ income

, 20–21

capital and non-capital measures

, 13–14

credit risk and performance

, 19–20

funding structure of banks

, 14–15

liquidity measurement

, 15–19

local versus global banks

, 22–23

off-balance sheet activities

, 23

structure of assets

, 22

systemic risk buffer

, 23

Borio, C.

, 154

Boyd, J.

, 22

Bratanovic, S. B.

, 9, 26, 96, 106, 111, 129, 130

Broader macroeconomic states

, 119–120

Broad money, defined

, 124

Brunnermeier, M.

, 93

Bunn, P.

, 46

Cajueiro, D. O.

, 22

Calmés, C.

, 15

Calomiris, C.

, 120

CAMELS framework

, 96–101

Capital adequacy ratio (CAR)

, 148

Capital analysis of banks

capital ratios

types of bank

, 88–92

sound bank capital for regulation

, 92–93

Capital conservation buffer

, 135

Capital measures

, 13–14

Capital Requirements Directive (CRD)

, 209–210

Capital Requirements Regulation (CRR)

, 209–210

Caprio, G.

, 120

CAR. See Capital adequacy ratio (CAR)

Carey, A.

, 40, 95

Carling, K.

, 120

Cash debt coverage ratio

, 15

Choi, H.

, 175

Claessens, S.

, 176

Collaterals

, 32

Common equity Tier 1 capital

, 89

Conditional migration probabilities

, 44

Contagion models

, 161

Contingent capital

, 182

Continuous variables

, 4

Countercylical capital buffer

, 135–136

Country risk

, 86–87

Covered bonds

, 35

CRD. See Capital Requirements Directive (CRD)

Credit channel of monetary policy

, 127–128

Credit risk

, 210–211

components of exposure at default

, 55–56

components of LGD

, 56–58

concept of expected and unexpected losses

, 52–55

exposure on balance sheets

, 30–31

management

, 37–38

measurement

, 38–39

metrics

, 34–37, 42–44

mitigation tools

, 32–34

modelling

approaches

, 39–40

data considerations

, 205–206

models

actuarial models of

, 51–52

of financial distress

, 41–42

macroeconomic models

, 44–47

reduced form models

, 51

structural models

, 47–51

nature of

, 31

off-balance sheet

, 31

and performance

, 19–20

solutions to impaired loans

, 38

sources of

, 31–32

transfer

, 34

Crisis management, information sharing in

, 189–201

Crockett, A.

, 170

Cross-sectional dimension of systemic risk

, 160

CRR. See Capital Requirements Regulation (CRR)

Cunningham, A.

, 46

Currency risk

, 84–85

Data considerations

, 205–206

Debt maturity adjustments

, 183

Debt service coverage ratio

, 37

Debt-to-equity ratio

, 36

Default generating process (DGP)

, 206

Deferred tax assets

, 142

Delbaen, F.

, 51

Dell’Ariccia, G.

, 4

Deloitte.

, 141

Demirgüç-Kunt, A.

, 22, 93

De Nicoló, G.

, 22

Deposit insurance

, 182

Detragiache, E.

, 4

de Vries, C.

, 161

DGP. See Default generating process (DGP)

Diamond, D. W.

, 81

Dodd-Frank Act (2010)

, 182

Domestic assets

, 124

Douglas, G.

, 25

Downside risk

, 6

Drehmann, M.

, 46, 154

Duration

application to bank

, 74–76

benefits of

, 67–73

concept

, 67

drawback of

, 73

effective

, 73–74

modified

, 73

of portfolio

, 76–77

of security

, 76

Dwyer, G. P.

, 4

EAD. See Exposure at default (EAD)

Early-warning models

, 160

Earnings perspective

, 64

Economic index

, 45

dependent variable

, 44

Economic value perspective

, 64–65

Effective risk management

, 8–9

ELs. See Expected losses (ELs)

Emerging market scoring model

, 42

Environmental risk

, 9, 10

Equity risk

, 86

ESRB. See European Systemic Risk Board (ESRB)

European Systemic Risk Board (ESRB)

, 150

Ex-ante regulation

, 29

Exchange rate channel of monetary policy

, 125

Expectations channel of monetary policy

, 126–127

Expected losses (ELs)

, 209

Ex-post regulation

, 29

Exposure at default (EAD)

, 55–56

External sources of risks

, 26–27

Fahr, S.

, 154

Fazio, D. M.

, 22

Federico, P.

, 17, 22

Fell, J.

, 154, 157, 159

Fiat money

, 123

Financial distress, models of credit risk

, 41–42

Financial market environment

, 10

Financial ratios, based on financial data

, 96

Financial risk

, 9

Financial Soundness Indicators (FSIs)

, 153

Financial stability

, 5–8

risk assessment in banks

, 29

Financial Stability Board (FSB)

, 150

Financial Stability Committee (FSC)

, 150

Financial Stability Oversight Council (FSOC)

, 150

Fixed interest rate

, 63

gap

, 61

Floating interest rates

, 63

Flood, M.

, 159

Foglia, A.

, 46

Fong, T.

, 175

Foreign assets

, 124

FSB. See Financial Stability Board (FSB)

FSC. See Financial Stability Committee (FSC)

FSIs. See Financial Soundness Indicators (FSIs)

FSOC. See Financial Stability Oversight Council (FSOC)

Fund

based balance sheet items

, 117

based lending

, 29–30

Funding

sources of

, 114

structure of banks

, 14–15

GAAP. See US Generally Accepted Accounting Principles (GAAP)

Gap analysis

, 65

Gap risk

, 60

US Generally Accepted Accounting Principles (GAAP)

, 26

Global banks

, 22–23

Global Systemically Important Banks (G-SIBs)

, 175–177

Goldstein, M.

, 93

Goodhart, C.

, 185

Gourinchas, P.-O.

, 161

Government policies

, 15

Greunig, H.

, 9, 96, 106, 111, 129, 130

G-SIBs. See Global Systemically Important Banks (G-SIBs)

Guarantees

, 33

Haldeman, R. G.

, 42

Hanson, S. G.

, 145, 147, 170, 182

Hartmann, P.

, 161

Hartzell, J.

, 42

Herfindahl–Hirschman Index (HHI)

, 87

HHI. See Herfindahl-Hirschman Index (HHI)

High leverage

, 1

Hodrick–Prescott filtered data

, 171

Hogart, G.

, 4

Hoogduin, L.

, 145

Hopkin, P.

, 5

Household sector

, 122

Huizinga, H.

, 93

IFRS. See International Financial Reporting Standards (IFRS)

Igan, D.

, 175

Impaired loans, solutions to

, 38

Information sharing in crisis management

, 189–201

Infrastructure environment

, 10

Interest rate channel of monetary policy

, 125, 126

Interest rate gap

, 61–62

limitations of

, 63–64

two versions of

, 62

Interest rate risk

analysis

, 64–66

benefits of duration

, 67–73

causes of

, 59–60

drawback of duration

, 73

duration application to bank

, 74–76

duration concept

, 67

duration of portfolio

, 76–77

duration of security

, 76

effective duration

, 73–74

fixed versus floating interest rates

, 63

interest rate gap

, 61–62

limitations of

, 63–64

two versions of

, 62

liquidity gap

, 62

management

, 66

balance sheet and non-balance sheet strategies for

, 78

modified duration

, 73

repricing analysis

, 60

sources of

, 60

structure of interest rates and

, 62–63

variables for

, 61

Internal sources of risks

, 26–27

International Financial Reporting Standards (IFRS)

, 26

International Swaps and Derivatives Association (ISDA)

, 32

Investment banks

, 21–22

Ioannidou, V.

, 161

ISDA. See International Swaps and Derivatives Association (ISDA)

Jacobson, T.

, 120

Jarrow, R.

, 51

Jokipii, T.

, 4

Kang, H.

, 175

Kashyap, A. K.

, 170, 182

Kattai, R.

, 45

Keller, C.

, 115

Key risk indicators (KRIs)

, 85

database

, 97–100

Kindleberger, C.

, 154

Klingebiel, D.

, 4, 120

KMV model

, 47–51

Köhler, M.

, 93

KRIs. See Key risk indicators (KRIs)

Kroszner, R. S.

, 4

Laeven, L.

, 4, 120

Landerretche, O.

, 161

Lang, M.

, 4, 16

LCR. See Liquidity coverage ratio (LCR)

Leverage ratio

, 90

under basel III

, 136–137

Levine, R.

, 22

LGD. See Loss Given Default (LGD)

Liability

structure of US bank

, 3

Li, K.-F.

, 175

Lindé, J.

, 120

Liquidity

gap

, 62

measurement

, 15–19

ratio

under basel III

, 137–139

defined

, 16

Liquidity coverage ratio (LCR)

, 137–138

Liquidity risk

forms of liquidity regulations

, 84

funding

, 80

manage

, 83–84

and solvency risk

, 81

sources of liquidity gap

, 80

and net present value of assets and liabilities

, 80–81

systemic liquidity risks

, 81–82

variants of liquidity ratio

, 82–83

Local banks

, 22–23

Loss Given Default (LGD)

, 52–55

Macaulay Duration

, 66

Macroeconomic environment

, 10

Macroeconomic models of credit risk

, 44–47

Macroprudential approach

, 167–169

Macroprudential policies

, 163–164

in Euro area

, 172–174

Macroprudential regulation

, 150–152

complementary roles of

, 166

defined

, 149–150

drawbacks of

, 165

EU banking union merging

, 174–175

overlap

, 166

tools

, 154–159

types of data for

, 152–154

Macro stress-testing models

, 161

Market-based data

, 153–154

Market-based financial system

, 11

Market-oriented approach

, 129

Meenen, L.

, 140

Mendelowitz, A.

, 159

Merton, R.

, 40, 48

Microprudential approach

, 167–169

Microprudential regulation

, 145

complementary roles of

, 166

EU banking union merging

, 174–175

instruments of

, 146

overlap

, 166

pitfall of

, 146–149

Minsky, H. M.

, 154

Mishkin, F.

, 120

Monetary policy

, 122–124

transmission mechanism of

, 124–128

Money, defined

, 123

Monnin, P.

, 4

Monte Carlo simulations

, 44

Morris, S

, 80

Mortgage-backed assets

, 23

Narayanan, P.

, 42

Narrow money, defined

, 124

NBFIs. See Non-bank financial institutions (NBFIs)

Net Stable Funding Ratio (NSFR)

, 16, 138–139

Neural networks

, 208

Noguera, G.

, 120

Non-balance sheet strategies, for interest rate risk management

, 78

Non-bank financial institutions (NBFIs)

, 129–130

Non-capital measures

, 13–14

Non-core Tier 1 Capital

, 135

Non-deposit funding

, 21–22

Non-financial firm

, 1–2

Non-fund-based balance sheet items

, 117

Non-fund-based lending

, 30

Non-interest income

, 21

Northern Rock case study

, 189–201

NSFR. See Net Stable Funding Ratio (NSFR)

Off-balance sheet

, 31

activities

, 23

Ongena, S.

, 161

Operating leverage

, 2

Operational risks

, 9, 85–86

Panel data models

, 208

Peck, M.

, 42

Perotti, E. C.

, 140

von Peter, G.

, 121

Peydrò, J. L.

, 161

Pierret, D.

, 92

Political risk

, 9, 87

Praet, P.

, 181

Prescriptive approach

, 129

Profitability ratios

, 95

Prompt Corrective Action

, 182

Quantitative metrics

, 6

Rajan, R.

, 4, 170

Rajan, R. G.

, 81

RAM. See Risk Assessment Matrix (RAM)

Ratings-inherent conflict of objectives among tripartite

, 208–209

Ratings of customers

, 205–208

Ratnovski, L.

, 140

Reduced form models of credit risk

, 51

Regulation of banks

, 129–130

Regulatory bodies

, 24

Regulatory environment

, 10

Reis, R.

, 4

Repricing analysis

, 60

Repricing risk

, 60

Retail-oriented banks

, 21

Retana, M.

, 92

Risk

banking stability map

, 102–103

based capital

, 6

country

, 86–87

credit

, 19–20

currency

, 84–85

defined

, 5–6

effective management

, 8–9

environmental

, 9

equity

, 86

financial

, 9

financial stability risk map

, 101–102

gap

, 60

indicators

, 95–96

internal and external sources of

, 26–27

metrics

, 6–7

mitigation policies initiated by banks

, 8

operational

, 9, 85–86

political

, 9, 87

repricing

, 60

solvency

, 81

systemic

, 159–160

weighted assets

, 139–140

yield curve

, 59

Risk Assessment Matrix (RAM)

, 7

example of

, 9

Robust economy

, 120

Rose, A.

, 177

Rosenberg, C.

, 115

Roszbach, K.

, 120

Roubini, N.

, 115

Roulet, C.

, 92

Saporta, V.

, 4

Schmidt, P. G.

, 16

Schoenmaker, D.

, 92, 175, 176, 177

Scholes, M.

, 48

Seal, K.

, 145

Securitisation

, 33

Sensitivities factor

, 6

Sensitivity analysis

, 45

Setser, B.

, 115

Shadow banking system

, 183

Shapiro, A.

, 86

Shin, H. S.

, 80

Shocks, defined

, 47

SIFIs. See Systemically Important Financial Institutions (SIFIs)

Solvency risk

, 81

Sound bank capital, for regulation

, 92–93

Sound banking system

, 13

Sources of Income, to Bank

, 20

SRB. See Systemic risk buffer (SRB)

Statutory liquidity ratio

, 84

Steffen, S.

, 92

Stein, J. C.

, 170, 182

Stiroh, K. J.

, 93

Straetmans, S.

, 161

Stress testing

, 210–211

models

, 46

Structural liquidity

, 17

Structural models of credit risk

, 47–51

Systematic approach

, 1

to financial stability risk assessment in banks

, 24

Systemically Important Financial Institutions (SIFIs)

, 150

Systemic liquidity risks

, 81–82

Systemic risk

, 159–160

indicators

, 163

propagating avenues for

, 162

sources of

, 161

tools for identification of

, 160–161

Systemic risk buffer (SRB)

, 23

System-wide approach

, 166

Tabak, B. M.

, 22

Teubner, G.

, 129

Théoret, R.

, 15

Threshold values, defined

, 4

Time dimension of systemic risk

, 159

Tinbergen’s rule

, 154–159

Transition matrix

, 43

Transmission mechanism of monetary policy

, 124–128

Tressel, T.

, 175

Tucker, P.

, 181

Turnbull, S.

, 51

Type I error

, 209

Type II error, defined

, 209

ULs. See Unexpected losses (ULs)

Unexpected losses (ULs)

, 209

Univariate analysis

, 45

Valdés, R.

, 161

Valencia, F.

, 4

Value at Risk (VaR)

, 6

Van Greuning, H.

, 26

VaR. See Value at Risk (VaR)

Variable interest rate gap

, 61

Vazquez, F.

, 17

Vestergaard, J.

, 92

Vlahu, R.

, 140

Volatility, defined

, 6

Weighted least squares

, 208

Wieladek, T.

, 177

Wolf, M.

, 1

Wong, T. C.

, 175

Wyplosz, C.

, 181

Yellen, J. L.

, 145

Yield curve risk

, 59

ZETA score

, 42

Zhang, Y.

, 175

Zhou, C.

, 148