With Basel II officially implemented in China, Macro-stress test exercises of credit risk are getting more and more important. In order to study the effectiveness of current methods in analyzing ...credit risk for Chinese Banking sector, Wilson model and quantile regression are applied in this paper. We find that QR approach can provide more refined results. Our Stress-testing exercises at the one-quarter horizon indicate that interest rate shock produces the most harmful effects followed by GDP growth and import growth, whereas distressed inflation and distressed housing price show little impact on non-performing loan rate(NPL), as an indicator of credit risk. Lastly, the simulated data shows that Wilson results tend to underestimate credit risk, which warns the practitioners that macro-stress testing generally employed may provide a biased direction.
We provide an economic valuation of the riskiness of risk models by directly measuring the impact of model risks (specification and estimation risks) on VaR estimates. We find that integrating the ...model risk into the VaR computations implies a substantial minimum correction of the order of 10-40% of VaR levels. We also present results of a practical method - based on a backtesting framework - for incorporating the model risk into the VaR estimates.
We provide an economic valuation of the riskiness of risk models by directly measuring the impact of model risks (specification and estimation risks) on VaR estimates. We find that integrating the ...model risk into the VaR computations implies a substantial minimum correction of the order of 10-40% of VaR levels. We also present results of a practical method Ñ based on a backtesting framework Ñ for incorporating the model risk into the VaR estimates.
One of the main functions of the central bank is to strengthen the stability of the financial system, an important aspect of which is to take an active part in the legislation process to improve the ...regulatory environment and to assess the potential impacts of new regulatory measures. In the summer of 2007 substantial changes took place in the governance of financial institutions with the introduction of regulations based on the new Basel capital standards (Basel II). The objective of this study is to investigate the likely consequences of such new bank regulations and their potential impact on financial stability. To this end, the study analyses the foreseeable developments in the cyclicality of capital requirements of banks based on the corporate credit portfolio of internationally active large banks, and points out that bank regulations are not always capable of fulfilling their intended function of enhancing financial stability in times of economic distress. Notably, the prospective increase in the cyclicality of capital requirements could well lead to a deepening of economic problems and to instability in the banking system, if the banking system appears undercapitalised relative to the risks assumed. All of this highlights the need for the development of a forward-looking risk assessment system and a supportive regulatory regime providing proper incentives.
The financial scandals în the last two decades have determined the Basel Committee to improve the risk controls for banks în general, and for operational risk in particular. Operational risk covers ...all non-market or credit risk, therefore including management risk, IT and fraud risk. By the Basel II Accord, the Committee proposes three risk measurement methods, which induce increasing costs, but also greater reductions în a bank’s capital reserve, and thus în its operating costs.
Provider: - Institution: - Data provided by Europeana Collections- Over the past two decades we have seen many changes in the banking world due to the development of the banking market and also due ...to the development of quantitative methods, which allow us to estimate the level of banking risks with greater accuracy. Mathematical models, which are developed by teams of analysts and then implemented in the banking systems, are evidence of practical application of mathematics in finance. Implemented by leading banks in the world, mathematical models set the direction of development of risk management process for the entire banking industry. These achievements are the subject of ongoing research by the Basel Committee, whose recommendations create global banking standards. Over the last twenty years, the Basel Committee has recommended several methods of risk analysis to protect the world banking system. In this article the author focuses on the analysis of credit risk, which evolved in cooperation with the Basel Committee. Thus, some suggestions are presented with respect to teaching banking risks in the context of knowledge of quantitative methods.- All metadata published by Europeana are available free of restriction under the Creative Commons CC0 1.0 Universal Public Domain Dedication. However, Europeana requests that you actively acknowledge and give attribution to all metadata sources including Europeana
Information Technologies (IT) play a crucial role in the development of activities concerning banking organizations. To achieve IT Governance, while at the same time giving special consideration to ...the attainment of business objectives, is of essential interest to any banking organization. This article presents a model for IT Governance which is applicable to the banking sector, which begins with the identification of COBIT processes that support the fulfilment of the principles of operative risk defined by BASEL II. It also integrates best practices oriented to risk and investment management for IT, information security and service lifecycle administration, described in models like: RISK IT, VAL IT, ISO 27002 and ITIL respectively. This model allows a banking organization to govern, evaluate and monitor its IT, thus fitting it to its strategic objectives. It also permits it to manage the operative risk from the perspective of normative fulfilment in banking.
This chapter discusses the importance of the value‐at‐risk (VaR) concept in the international standards (Solvency II, Basel II and Basel III) that aim at measuring the solvability of banks or ...insurance companies in time intervals (one day, 10 days, one year) and the restrictive assumptions under which this concept is used. It highlights the fact that VaR has become a key indicator for risk management not only for banks, but also for insurance companies. The calculation of regulatory equities is based on a VaR, whose confidence level and time horizon depend on the characteristics of the underlying business.
The Basel II accord encourages banks to develop their own advanced measurement approaches (AMA). However, the paucity of loss data implies that an individual bank cannot obtain a probability ...distribution with any reliability. We propose a model, targeting the regulator initially, by obtaining a probability distribution for loss magnitude using pooled annual risk losses from the banks under the regulator’s oversight. We start with summarized loss data from 63 European banks and adjust the probability distribution obtained for losses that go unreported by falling below the threshold level. Using our model, the regulator has a tool for understanding the extent of annual operational losses across all the banks under its supervision. The regulator can use the model on an ongoing basis to make comparisons in year-on-year changes to the operational risk profile of the regulated banking sector.
