Latin American credit ratings, the New Basel Capital Accord and portfolio risk

Commercial banks are required by regulation to maintain capital that varies with the perceived risk ofbanking assets. The risk-based capital rule initially introduced by the Bank for International Settlements in 1988 is under revision. This study provides an empirical analysis of proposed capital risk-weights for a sample of global assets. We apply a diffusion-based methodology for assessing the value-at-risk (VaR) of a portfolio offixedincome securities comparable to those now issued and likely to be issued for the foreseeable future by firms in Latin America. This is accomplished by simultaneously simulating both the future environment in which financial instruments will be valued and the credit rating of specific firms. This paper applies a simulation model to assess correlated market, basis and credit risk for both individual bonds and a portfolio ofbonds of similar initial credit quality. Interest rate or market risk is relatively more important for high-grade bonds issued by strong companies from developed countries. Basis risk and credit risk are more important for companies from countries whose sovereign debt is rated lower medium-grade and low-grade

An Analysis of Off-Site Supervision of Banks' Profitability, Risk and Capital Adequacy: a portfolio simulation approach applied to brazilian banks

In most countries, the role of off-site bank supervision involves continuous monitoring of profitability, risk and capital adequacy. The objective of this article is to demonstrate the value of bringing together advanced modeling techniques with data on banks' assets and liabilities and credit worthiness. More specifically, we apply an integrated market and credit risk simulation methodology to a group of six hypothetical banks. We show the capacity of the methodology: (i) to simulate credit transition probabilities of default close to the historical values estimated by the Central Bank of Brazil; and (ii) to simulate asset and equity returns that are unbiased estimators of average historical returns and standard deviations. Our results also indicate that: (i) a sharp reduction in the interest rate spreads of Brazilian banks reduces bank profitability and increases the probability of default; and (ii) most banks have low probability of bankruptcy. Our position is that utilization of forward looking risk evaluation methodologies in databases, such as those developed by the Central Bank of Brazil, has significant potential as an instrument of indirect supervision to identify potential risks before they materialize.

Tribological Characterisation of Graphene Oxide as Lubricant Additive on Hypereutectic Al-25Si/Steel Tribopair

The performance of a lubricant greatly depends on the additives it involves. However, recently used additives produce severe pollution when they are burned and exhausted. Therefore, it is necessary to develop a new generation of green additives. Graphene oxide (GO) is considered to be environmentally friendly. The scope of this study is to explore the fundamental tribological behavior of graphene, the first existing 2D material, and evaluate its performance as a lubricant additive. The friction and wear behavior of 0.5 wt% concentrations of GO particles in ethanol and SAE20W50 engine oil on a hypereutectic Al-25Si alloy disc against steel ball was studied at 5 N load. GO as an additive reduced the wear coefficient by 60–80% with 30 Hz frequency for 120 m sliding distance. The minimum value of the coefficient of friction (0.057) was found with SAE20W50 + 0.5 wt% GO. A possible explanation for these results is that the graphene layers act as a 2D nanomaterial and form a conformal protective film on the sliding contact interfaces and easily shear off due to weak Van der Waal's forces and drastically reduce the wear. Scanning electron microscopy (SEM), energy-dispersive spectroscopy (EDS), and Raman spectroscopy were used for characterization of GO and wear scars