Search results

This paper aims to analyse the exposure at default (EAD) in the event of multiple banking relationships to understand the differences with respect to solo banking relationships and forecast the banks risk exposure.

The paper uses a unique database provided by the Italian public credit register representative of the full Italian market before the financial crisis. The analysis compares different EAD risk proxies for debtors with unique and multiple banking relationships to underline the main differences among the two groups.

Results show that EAD forecast could be improved considering the existence of exposures with other lenders and banks that consider such type of information can reduce the risk of underestimating the risk exposure of a debtor.

The paper is the first attempt to model the EAD on the basis of the existence of multiple lending exposures. Results demonstrate a different lender’s risk exposure for debtors with multiple credit risk exposure and show the usefulness of the information about the overall system exposure in evaluating the risk exposure related to this type of customers.

A major topic in retail lending is the measurement of the inherent portfolio credit risk. The needs for a better understanding and dealing with default risky securities have been reinforced by the Basel Committee on Banking Supervision [1999a, 1999b, 2000, 2001a, 2001b, 2002, 2003] which has proposed a revision of the standards for banks' capital requirements.

A credit risk model suitable for agricultural lenders is identified. The model incorporates sector correlations and is applied to the loan portfolio of an agricultural credit association to create a distribution of loan losses. The distribution is used to derive the lender’s expected and unexpected losses. Results of the analysis indicate that the association is more than adequately capitalized based on 1997S2002 data. Since the capital position of the association is lower than that of most other associations in the Farm Credit System, this raises the issue of overcapitalization in the System.

This study aims to survey supervisory requirements and expectations for counterparty credit risk (CCR).

In this paper, a survey of CCR including the following elements has been performed. First, various concepts in CCR measurement and management, including prevalent practices, definitions and conceptual issues have been introduced. Then, various supervisory requirements and expectations with respect to CCR have been summarized. This study has multiple areas of relevance and may be extended in various ways. Risk managers, traders and regulators may find this to be a valuable reference. Directions for future research could include empirical analysis, development of a theoretical framework and a comparative analysis of systems for analyzing and regulating CCR.

Some of the thoughts regarding the concept of risk will be considered and surveyed, and then how these apply to CCR will be considered. A classical dichotomy exists in the literature, the earliest exposition upon which is credited to Knight (1921), who defines uncertainty is when it is not possible to measure a probability distribution or it is unknown. This is contrasted with the situation where either the probability distribution is known, or knowable through repeated experimentation. Arguably, in economic and finance (and more broadly in the social or natural as opposed to the physical or mathematical sciences), the former is a more realistic scenario that is being contending with (e.g. a fair vs loaded die, or die with unknown number of sides.) The authors are forced to rely upon empirical data to estimate loss distributions, but this is complicated because of changing economic conditions, which invalidate forecasts that our econometric models generate.

This is one of few studies of the CCR regulations that is so far-reaching.