The Merton Approach to Estimating Loss Given Default: Application to the Czech Republic

This paper focuses on a key credit risk parameter – Loss Given Default (LGD). We illustrate how the LGD can be estimated with the help of an adjusted Mertonian structural approach. We present a derivation of the formula for expected LGD and show its sensitivity analysis with respect to other company structural parameters. Finally, we estimate the five-year expected LGDs for companies listed on Prague Stock Exchange and find that the average LGD for the analyzed sample is around 20–50%.Credit risk, loss given default, structural models.

Credit Growth and Capital Buffers: Empirical Evidence from Central and Eastern European Countries

Excessive credit growth is often considered to be an indicator of future problems in the financial sector. This paper examines the issue of how to determine whether the observed level of private sector credit is excessive in the context of the “countercyclical capital bufferâ€, a macroprudential tool proposed in the new regulatory framework of Basel III by the Basel Committee on Banking Supervision. An empirical analysis of selected Central and Eastern European countries, including the Czech Republic, provides alternative estimates of excessive private credit and shows that the HP filter calculation proposed by the Basel Committee is not necessarily a suitable indicator of excessive credit growth for converging countries.Basel regulation, credit growth, financial crisis countercyclical buffer.

Yield Curve Dynamics: Regional Common Factor Model

In this paper, we focus on thorough yield curve modelling. We build on extended classical Nelson-Siegel model, which we further develop to accommodate unobserved regional common factors. We centre our discussion on Central European currencies’ yield curves: CZK, HUF, PLN and SKK. We propose a model to capture regional dynamics purely based on state space formulation. The contribution of this paper is twofold: we examine regional yield curve dynamics and we quantify regional interdependencies amongst considered currencies’ yield curves. We conclude that the CZK yield curve possesses its own dynamics corresponding to country specific features, whereas other currencies’ yield curves are strongly influenced by the regional level, the regional slope factor or both.Dynamic Factor Model, Kalman Filter, Nelson-Siegel, State Space, Regional Yield Curve, Principal Component Analysis

Conservative Stress Testing: The Role of Regular Verification

This paper focuses on how to calibrate models used to stress test the most important risks in the banking system. Based on the results of a verification of the Czech National Bank’s stress testing methodology, the paper argues that stress tests should be calibrated conservatively and slightly overestimate the risks. However, to ensure that the stress test framework is conservative enough over time, a verification, i.e. comparison of the actual values of key banking sector variables – in particular the capital adequacy ratio – with predictions generated by the stress-testing models should become a standard part of the stress-testing framework.stress testing; credit risk; bank capital

Implied Market Loss Given Default in the Czech Republic: Structural-Model Approach

This paper focuses on the key credit risk parameter – Loss Given Default (LGD). We describe its general properties and determinants with respect to seniority of debt, characteristics of debtors and macroeconomic conditions. Furthermore, we illustrate how the LGD can be extracted from market observable information with help of the adjusted Mertonian structural approach. We present a derivation of the formula for the expected LGD and show its sensitivity with respect to other structural company parameters. Finally, we estimate the 5-year expected LGDs for companies listed on the Prague Stock Exchange and find that the average LGD for this analyzed sample is in the range of 20–45 %. To the authors’ knowledge, these are the first implied market estimates of LGD in the Czech Republic.loss given default, credit risk, structural models

Credit growth and financial stability in the Czech Republic

The Czech Republic had experienced a credit boom similar to those in other converging economies in the pre-crisis years. Nevertheless, the consequences of this credit boom were limited as was the impact of the global crisis on domestic financial institutions. This paper describes the developments in the Czech banking sector and explains how the tough macroeconomic environment in the Czech Republic acted as a strong tool of macroprudential policy. It concludes that although it is difficult to tame credit booms in small converging economies, a concerted set of microprudential and macroprudential measures, including monetary and fiscal ones, may ensure some success.Banks&Banking Reform,Debt Markets,Currencies and Exchange Rates,Access to Finance,Emerging Markets

Implied market loss given default

Tato práce se zabývá klíčovým parametrem kreditního rizika - ztrátou při defaultu (loss given default - LGD). V první části práce jsou popsány hlavní determinanty ztráty následkem defaultu odvíjející se od seniority dluhu, charakteristik dlužníka, nebo makroekonomických podmínek, a je probírána role LGD v rámci Nové basilejské dohody (Basel II). Dále jsou podrobně rozvedeny metody, pomocí nichž lze extrahovat LGD z tržních dat jak s využitím strukturálních, tak redukovaných modelů. Na závěr jsou pomocí upraveného Mertonova modelu odhadnuty pětileté LGD pro společnosti kotované na Pražské burze. Výpočty ukazují, že průměrné LGD analyzovaného vzorku firem se pohybuje kolem 20 %. Uvedené hodnoty tržně odhadnuté ztráty z defaultu patří mezi první v České republice. Powered by TCPDF (www.tcpdf.org)This thesis focuses on the key credit risk parameter - Loss Given Default (LGD). We describe its general properties and determinants with respect to seniority of debt, characteristics of debtors or macroeconomic conditions, and discuss its role in Basel II framework. Further, we illustrate how the LGD can be extracted from market observable information with help of both the structural and reduced- form models. Finally, by using the adjusted Mertonian approach, we estimate the 5-year expected LGDs for companies listed on Prague Stock Exchange and find out, that the average LGD for this analyzed sample is around 20%. To the author's best knowledge, those are the first implied market estimates of LGD in the Czech Republic. Powered by TCPDF (www.tcpdf.org)Institute of Economic StudiesInstitut ekonomických studiíFakulta sociálních vědFaculty of Social Science

Evaluation of Rates and Revenues of Waste Collection Fee in Frýdek-Místek District

Bakalářská práce se zabývá zhodnocením sazeb a výběru místního poplatku za svoz komunálního odpadu ve vybraných obcích okresu Frýdek-Místek za období let 2013-2017 a jejich podíl na celkových příjmech místních poplatků do obecních rozpočtů. Teoretická část popisuje vztah mezi veřejnými financemi na území ČR, veřejnými rozpočty a detailněji pak postavením všech místních poplatků veřejné správy na území ČR. V analýze místního poplatku za svoz komunálního odpadu ve vybraných obcích se práce zabývá srovnáním jednotlivých výší vybraných poplatků za svoz komunálního odpadu, jejich podílem na celkových příjmech obcí a přehledem příjmů a výdajů na jednoho obyvatele obce. Na základě výše uvedených poznatků jsou navrženy způsoby vedoucí ke zvýšení a zlepšení efektivnosti při výběru poplatků za komunální odpad ve vybraných obcích Frýdecko-Místeckého okresu.The bachelor thesis deals with the evaluation of rates and local fee collection for municipal waste collection in selected municipalities of the Frýdek-Místek district for the period 2013-2017 and their share in the total income of local fees to municipal budgets. The theoretical part describes the relationship between public finances in the Czech Republic, public budgets and then detail the status of all local taxes Public Administration in the Czech Republic. In the analysis of the local fee for municipal waste collection in selected municipalities, the thesis deals with the comparison of individual amounts of collected fees for municipal waste collection, their share in the total income of municipalities and an overview of income and expenditure per one inhabitant of the municipality. Based on the above findings they suggest ways to increase and improve efficiency in charging for municipal waste in selected municipalities in Frydek-Místek district.153 - Katedra veřejné ekonomikyvýborn

Excessive credit growth and countercyclical capital buffers in basel III: an empirical evidence from central and east european countries

Excessive credit growth is often considered to be an indicator of future problems in the financial sector. This paper examines the issue of how best to determine whether the observed level of private sector credit is excessive in the context of the “countercyclical capital buffer”, a macroprudential tool proposed in the new regulatory framework of Basel II by the Basel Committee on Banking Supervision. An empirical analysis of selected Central and Eastern European countries, including the Czech Republic, provides alternative estimates of excessive private credit and shows that the HP filter calculation proposed by the Basel Committee is not necessarily a suitable indicator of excessive credit growth for converging countries

Excessive credit growth and countercyclical capital buffers in basel III: an empirical evidence from central and east european countries

Excessive credit growth is often considered to be an indicator of future problems in the financial sector. This paper examines the issue of how best to determine whether the observed level of private sector credit is excessive in the context of the “countercyclical capital buffer”, a macroprudential tool proposed in the new regulatory framework of Basel II by the Basel Committee on Banking Supervision. An empirical analysis of selected Central and Eastern European countries, including the Czech Republic, provides alternative estimates of excessive private credit and shows that the HP filter calculation proposed by the Basel Committee is not necessarily a suitable indicator of excessive credit growth for converging countries