Forecasting Credit Portfolio Risk

The main challenge of forecasting credit default risk in loan portfolios is forecasting the default probabilities and the default correlations. We derive a Merton-style threshold-value model for the default probability which treats the asset value of a firm as unknown and uses a factor model instead. In addition, we demonstrate how default correlations can be easily modeled. The empirical analysis is based on a large data set of German firms provided by Deutsche Bundesbank. We find that the inclusion of variables which are correlated with the business cycle improves the forecasts of default probabilities. Asset and default correlations depend on the factors used to model default probabilities. The better the point-in-time calibration of the estimated default probabilities, the smaller the estimated correlations. Thus, correlations and default probabilities should always be estimated simultaneously. --asset correlation,bank regulation,Basel II,credit risk,default correlation,default probability,logit model,probit model

Kreditbewertung im deutschen Steuersystem -eine Shareholder-Value-basierte Betrachtung-

Viele Kreditinstitute messen einer möglichst verlässlichen Bewertung von Kreditrisiken eine hohe Bedeutung bei. Die meisten Untersuchungen konzentrieren sich dabei auf Risikokennzahlen. Steuerliche Aspekte hingegen bleiben bei all diesen Betrachtungen bislang weitgehend unberücksichtigt. Eine Einbeziehung des Steuersystems - so zeigt der Autor - ist ebenso wertrelevant wie die Verlagerung der Sichtweise auf die Ebene der Anteilseigner und der Grad der Eigenkapitalunterlegung

Downturn LGD for Hong Kong Mortgage Loan Portfolios

Recent studies find a positive correlation between default and loss given default (LGD) rates for credit portfolios. In response, financial regulators require financial institutions to base their capital on the downturn loss rate given default, which is also known as downturn LGD. This paper compares alternative concepts for the downturn LGD of Hong Kong mortgage loan portfolios

Capital Incentives and Adequacy for Securitizations

This paper analyzes the capital incentives and adequacy of financial institutions for asset portfolio securitizations. The empirical analysis is based on US securitization rating and impairment data. The paper finds that regulatory capital rules for securitizations may be insufficient to cover implied losses during economic downturns such as the Global Financial Crisis. In addition, the rating process of securitizations provides capital arbitrage incentives for financial institutions and may further reduce regulatory capital requirements. These policy-relevant findings assume that the ratings assigned by rating agencies are correct and can be used to build a test for the ability of Basel capital regulations to cover downturn losses. © 2011 Elsevier B.V