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on Banking |
| By: | cipollini, andrea; missaglia, giuseppe |
| Abstract: | In this paper we use a reduced form model for the analysis of Portfolio Credit Risk. For this purpose, we fit a Dynamic Factor model, DF, to a large dataset of default rates proxies and macro-variables for Italy. Multi step ahead density and probability forecasts are obtained by employing both the direct and indirect method of prediction together with stochastic simulation of the DF model. We, first, find that the direct method is the best performer regarding the out of sample projection of financial distressful events. In a second stage of the analysis, the direct method of forecasting through principal components is shown to provide the least sensitive measures of Portfolio Credit Risk to various multifactor model specifications. Finally, the simulation results suggest that the benefits in terms of credit risk diversification tend to diminish with an increasing number of factors, especially when using the indirect method of forecasting. |
| Keywords: | Dynamic Factor Model; Forecasting; Stochastic Simulation; Risk Management; Banking |
| JEL: | G33 C53 G21 |
| Date: | 2007–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:3582&r=ban |
| By: | Zoltan, Varsanyi |
| Abstract: | In this paper I examine whether the probability of default (PD) of an obligor estimated by a logit model can really be considered a good estimate of the true PD. The general answer seems to be no, although in this paper I don’t carry out a large scale (simulation) analysis. With a simple set-up I show that the logit has a high potential of ‘mixing’ probabilities, that is, as signing similar scores to obligors with quite different PDs. I demonstrate how this situation is reflected in the convexity that can often be observed in empirical ROC curves. I think that the results have important implications in the pricing of individual exposures and raise the question of the stability of estimated PDs when the value-combinations of the risk factors underlying the portfolio change. This latter issue also relates to capital calculation, model building and validation as required by the new Basel capital rules. For example, because of the concavity of the risk weight formula a bank may want to avoid PD mixing thereby reducing its capital requirement. |
| Keywords: | credit risk; logit; Basel II |
| JEL: | G21 C13 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:3658&r=ban |
| By: | Chiara Pederzoli |
| Abstract: | As emphasized by the introduction of Basel II, the macroeconomic factors strongly affect credit risk variables. In order to account for the business cycle in a forward-looking way, a macroeconomic forecast can be introduced in the estimation of credit risk variables. This work proposes to model the distribution of the default rate as a mixture distribution which accounts for a binary representation of the business cycle: the distribution changes according to the estimated probability of recession over the credit horizon considered. |
| Keywords: | default risk; Poisson mixture; business cycle |
| JEL: | G21 C1 E3 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:mod:wcefin:07052&r=ban |
| By: | Rita Babihuga |
| Abstract: | This paper analyzes the relationship between selected macroeconomic and financial soundness indicators (FSIs) using a newly assembled panel dataset of FSIs for 96 countries covering the period 1998-2005. The analysis covers key macroeconomic indicators and FSIs of capital adequacy, asset quality and profitability. The paper finds that FSIs fluctuate strongly with both the business cycle and the inflation rate. Short term interest rates and the real exchange rate also emerge as important determinants. There is also a considerable degree of heterogeneity in the relationship between macroeconomic indicators and FSIs across the sample of countries. Several country and industry specific characteristics including country income levels, financial depth, market concentration, and the quality of regulatory supervision are found to be significant in explaining this cross country heterogeneity. |
| Date: | 2007–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/115&r=ban |
| By: | Holger Floerkemeier; Era Dabla-Norris |
| Abstract: | Despite far-reaching banking sector reforms and a prolonged period of macroeconomic stability and strong economic growth, financial intermediation in Armenia has lagged behind other transition countries, and interest rate spreads have remained higher than in most Central and Eastern European transition countries. This paper examines the determinants of interest rate spreads and margins in Armenia using a bank-level panel dataset for the period 2002 to 2006. We find that bank-specific factors, such as bank size, liquidity, and market power, as well as the market structure within which banks operate, explain a large proportion of crossbank, cross-time variation in spreads and margins. The results suggest that there is a large potential to increase cost efficiency and competition in the banking system. |
| Keywords: | Working Paper , Banking systems , Armenia , Interest rates , |
| Date: | 2007–06–12 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/134&r=ban |
| By: | Rasyad A. Parinduri (Singapore Center for Applied and Policy Economics (SCAPE) Department of Economics, National University of Singapore); Yohanes E. Riyanto (Department of Economics, National University of Singapore) |
| Abstract: | We examine the effect of strategic sale—the sale of banks to strategic foreign investors—on banks’ performance. The Government of Indonesia implemented such a policy as a part of bank restructuring in the aftermath of the 1998 banking crisis. Using difference-in-difference models, we find that strategic sale leads to 12%-15% cost reduction. These results are robust to the use of other estimators such as difference-in-difference matching-estimators and stochastic-frontier analysis, to that of other performance measures such as return on assets and net interest margin, and also to that of different types of samples. These suggest that strategic sale could play an important role in restructuring troubled banks in developing countries. |
| Keywords: | banking crisis, recapitalized banks, the sale of assets, difference- in-difference models, matching estimator |
| JEL: | C21 C23 G21 G28 |
| Date: | 2007–05 |
| URL: | http://d.repec.org/n?u=RePEc:sca:scaewp:0709&r=ban |