Hacked AIRB Black Box

A loss distribution of a credit portfolio in framework of AIRB is determines as a product of Vasicek distribution function by an adjustment coefficient, which allows for the Loss Given Default as an exogenous parameter LGD and the maturity of obligations T. This coefficient depends also on probability of default (PD) in non-obvious way, which does not explained in Basel documentation. It is not clear also what is the scope of validity of this formula, though the form of this adjustment allows to suspect that it is approximation of another formula, which id more and more complicated. In essence, the AIRB adjustment is a kind of the “black box.” Authors tried to hack this black box using the generalized Vasicek approach. Unlike the Vasicek model describing only the distribution of defaults, the obtained in this paper Vasicek-Merton model describes the loss distribution and it seems that the AIRB model is just an approximation of the Vasicek-Merton model

Do banks need a supervisor?

The paper studies a simple microeconomic stochastic model of a bank operating in a competitive environment. The model allows us to describe the conditions on the model parameters that generate both the formation of bubbles in the credit market and the formation of stable banks with self-restrictive behavior, that do not require the intervention of the regulator. The comparative statics of equilibria is studied with respect to the basic parameters of the model, a theoretical assessment is carried out of the probability of bank default based on the values of exogenous factors in both the short and long term

Do banks need a supervisor?

The paper studies a simple microeconomic stochastic model of a bank operating in a competitive environment. The model allows us to describe the conditions on the model parameters that generate both the formation of bubbles in the credit market and the formation of stable banks with self-restrictive behavior, that do not require the intervention of the regulator. The comparative statics of equilibria is studied with respect to the basic parameters of the model, a theoretical assessment is carried out of the probability of bank default based on the values of exogenous factors in both the short and long term

Do banks need a supervisor?

The paper studies a simple microeconomic stochastic model of a bank operating in a competitive environment. The model allows us to describe the conditions on the model parameters that generate both the formation of bubbles in the credit market and the formation of stable banks with self-restrictive behavior, that do not require the intervention of the regulator. The comparative statics of equilibria is studied with respect to the basic parameters of the model, a theoretical assessment is carried out of the probability of bank default based on the values of exogenous factors in both the short and long term

Bubble Bank

The paper considers a bank, left to itself, outside of regulation and supervision. The stochastic model allows us to describe the parameters, which create conditions both for the formation of bubbles in the credit market and for the formation of stable banks with self-restrictive behavior that do not require regulatory intervention. The comparative statics of equilibria is studied with respect to the basic parameters of the model, a theoretical assessment is carried out of the probability of bank default based on the values of exogenous factors. Our main task is to evaluate a bank probability of default not by using an econometric empirical approach, but by using microeconomic modeling

Do banks need a supervisor?

The paper studies a simple microeconomic stochastic model of a bank operating in a competitive environment. The model allows us to describe the conditions on the model parameters that generate both the formation of bubbles in the credit market and the formation of stable banks with self-restrictive behavior, that do not require the intervention of the regulator. The comparative statics of equilibria is studied with respect to the basic parameters of the model, a theoretical assessment is carried out of the probability of bank default based on the values of exogenous factors in both the short and long term

Bubble Bank

The paper considers a bank, left to itself, outside of regulation and supervision. The stochastic model allows us to describe the parameters, which create conditions both for the formation of bubbles in the credit market and for the formation of stable banks with self-restrictive behavior that do not require regulatory intervention. The comparative statics of equilibria is studied with respect to the basic parameters of the model, a theoretical assessment is carried out of the probability of bank default based on the values of exogenous factors. Our main task is to evaluate a bank probability of default not by using an econometric empirical approach, but by using microeconomic modeling

From Default Distribution to Loss Distribution: Vasicek Mertonization

The Vasicek-Merton (VM) loss distribution function was derived using the Vasicek and the Merton models as an alternative to the AIRB approach. A loan was modeled as a portfolio of a risk-free bond, and a weighted combination of short European vanilla and binary put options written on the assets of the firm, with the strike equal to its debt and expiration equal to maturity of the loan. An endogenous Loss Given Default (LGD) was derived on the base of the Vasicek-Merton CDF

Russian economy under sanctions (Case of the northwest of Russia)

The article analyzes the state of the production sector of the economy in the Northwest of Russia in 2022. The problems and prospects of its functioning in new geopolitical conditions are assessed, and the processes of its adjustment to sanctions are studied. The work is based on data provided by the Federal State Statistics Service of Russian Federation, as well as questionnaire surveys conducted by the Vologda Research Center of the Russian Academy of Sciences and the Institute of Economic Forecasting of the Russian Academy of Sciences from April–June 2022. It is shown that the negative consequences of the Western sanctions strengthened in the first half of 2022 turned out to be more severe for the production sector of the region under analysis than for the whole country; many respondents found it important to revise logistics routes, search for new suppliers and consumers of products, and focus on the domestic market