What do Basel Capital Accords mean for SMEs?

This paper analyses the impact of the new Basel Capital Accords (Basel II and Basel III) on the bank’s capital requirements in a portfolio of Small and Medium-sized Enterprises (SMEs) when the internal ratings-based (IRB) approach is used. To do this, the study uses a large database of Spanish firms and covers the period from 2005 to 2009. We also examine the effect on the credit risk premium charged by banks of the guarantee offered by a Loan Guarantee Association (LGA) to a SME; and whether this foreseeable decrease in the interest rates applicable to the SME is compensated by the cost of this guaranteeBank capital requirements, Credit risk mitigation, Bank financing of SMEs, Basel II, Basel III Loan Guarantee Association

Credit risk mitigation and SMEs bank financing in Basel II : the case of the Loan Guarantee Associations

The objective of this paper is to analyse the impact of the techniques foreseen in the Basel Agreement II (BII) for mitigating the risk of default on bank loans to small and medium enterprises (SMEs). In particular, we will conduct an analysis of the effect of the guarantees that the Loan Guarantee Association (LGA) offer to the SMEs on the assignment of capital requirements of the financial entities under BII. At the same time, the study will examine the effect of this guarantee on the credit risk premium that the financial entities should charge their clients, and whether this foreseeable decrease in the interest rates applicable to the SMEs is compensated by the cost of the guarantee. The results show that, considering that the cost of the LGA guarantee in Spain is around 0.68%, it will be advantageous for an SME with the annual sales of less than or equal to €5 million to request this guarantee whenever the probability of default (PD) of the LGA is <1.1%, if the approach utilised by the financial entity is the Internal Ratings-Based (IRB) and the SME is considered as corporate; however, if the SME is included in a regulatory retail portfolio, then the limit for the PD of the LGA decreases to 0.71%. On the other hand, when the approach utilised is the Standardised one, then will be profitable for an SME treated as retail to request this guarantee whenever the PD of the LGA is <3.35% (3.95% for corporate exposures)

What do we know about banks securitisation? the spanish experience

The present work analyses the reasons why Spanish financial entities have carried out securitisation programs in the period 2000-2007 on such a scale that Spain has become the European country with the largest issue volumes, second only to the U.K. The results obtained after the application of a logistic regression model to a sample of 408 observations indicate that liquidity and the search for improved performance are the decisive factors in securitisation. The hypotheses of transfer of credit risk and arbitrage in regulatory capital are not confirmed; therefore the normative development of Basel II cannot be expected to affect the volumes issued in future years. The study is complemented with a more detailed analysis, differentiating between programs of asset and liability securitisatio

What drives bank securitisation? The Spanish experience.

This paper analyses the reasons why Spanish banks securitised in the period 2000–2007 on such a large scale that Spain has become the European country with the second-largest issuance volume after the UK. The results obtained by applying a logistic regression model to a sample of 408 observations indicate that liquidity and the search for improved performance are the decisive factors in securitisation. We find no evidence to support hypotheses regarding credit risk transfer and regulatory capital arbitrage. Our study also presents a more detailed analysis that differentiates between asset and liability securitisation programmes.Securitisation; ABS; CDO; Credit risk transfer; Regulatory capital arbitrage;

What do we know about banks securitisation? the spanish experience

The present work analyses the reasons why Spanish financial entities have carried out securitisation programs in the period 2000-2007 on such a scale that Spain has become the European country with the largest issue volumes, second only to the U.K. The results obtained after the application of a logistic regression model to a sample of 408 observations indicate that liquidity and the search for improved performance are the decisive factors in securitisation. The hypotheses of transfer of credit risk and arbitrage in regulatory capital are not confirmed; therefore the normative development of Basel II cannot be expected to affect the volumes issued in future years. The study is complemented with a more detailed analysis, differentiating between programs of asset and liability securitisationSecuritisation, ABS, CDO, Credit risk transfer, Regulatory capital arbitrage

Efectos del aval de las SGRs en la financiación de las PYME y los requerimientos de capital de Basilea II

El objetivo del presente trabajo es analizar cómo influye el aval que las Sociedades de Garantía Recíproca (SGR) conceden a las Pequeñas y Medianas Empresas (PYME) en los fondos propios exigidos a las entidades financieras en el nuevo Acuerdo de Capital, conocido como Basilea II. Con ello se pretende examinar el efecto de la garantía sobre la prima de riesgo que los bancos debieran cargar a sus empresas clientes, y si esta previsible disminución en los tipos de interés aplicables se ve compensada por el coste del aval para la PYME. Entre las principales conclusiones encontramos que, dado que el coste del aval de una SGR, en España, se sitúa en el 0,73%, a una PYME que acceda al mercado del crédito este aval le resultará rentable toda vez que la probabilidad de impago de la sociedad garante sea inferior al 1%, si el sistema aplicado por la entidad financiera para calcular su capital regulatorio se basa en la valoración interna del riesgo (enfoque IRB). En el caso de que el banco aplique el enfoque estándar, este límite se sitúa en el 2,5% aproximadamente

A feature-based shape similarity assessment framework

The popularity of 3D CAD systems is resulting in a large number of CAD models being generated. Availability of these CAD models is opening up new ways in which information can be archived, analyzed, and reused. 3D geometric information is one of the main components of CAD models. Therefore shape similarity assessment is a fundamental geometric reasoning problem that finds several different applications. In many design and manufacturing applications, the gross shape of the 3D parts does not play an important role in the similarity assessment. Instead certain attributes of part features play a dominant role in determining the similarity between two parts. Different feature-based models are usually created using their own coordinate systems. Therefore, feature-based shape similarity assessment involves finding the optimal alignment transformations for two sets of feature vectors. The optimal alignment corresponds to the minimum value of a distance function that is computed between the two sets of feature vectors being aligned. In order to compute the distance function the closest neighbor to each feature vector needs to be identified. We have developed optimal feature alignment algorithms based on the partitioning of the transformation space into regions such that the closest neighbors are invariant within each region. These algorithms can work with customizable distance functions. We have shown that they have polynomial time complexity. For higher dimension transformation spaces it is harder to design algorithms based on the partitioning of transformation spaces because the data structures involved are very complex. In those cases, feature alignment algorithms based on iterative strategies have been developed. Iterative strategies make use of optimal feature alignment algorithms based on the partitioning of lower dimension transformation spaces. Extensive experiments have been carried out to provide empirical evidence that iterative strategies can find the optimal solution for feature alignment problems. A feature-based shape similarity analysis framework has been built based on the feature alignment algorithms. This framework has been demonstrated with the two following applications. A machining feature based alignment algorithm has been developed to automatically search databases for parts that are similar to a newly designed part in terms of machining features. We expect that the retrieved parts can be used as a basis to perform cost estimation of the newly designed part. A surface feature based alignment algorithm has been developed to automatically search databases for parts that are similar to a newly designed part in terms of surface features. We expect that the retrieved parts can be used as a basis to choose the most appropriate tool maker for the newly designed part. We believe that the feature-based shape similarity assessment algorithms developed in this thesis will provide the foundations for designing new feature-based shape similarity algorithms that will enable designers to efficiently retrieve archived geometric information. We expect that these tools will facilitate information reuse and therefore decrease product development time and cost

EFECTOS DEL AVAL DE LAS SGRs EN LA FINANCIACIÓN DE LAS PYME Y LOS REQUERIMIENTOS DE CAPITAL DE BASILEA II

El objetivo del presente trabajo es analizar cómo influye el aval que las Sociedades de Garantía Recíproca (SGR) conceden a las Pequeñas y Medianas Empresas (PYME) en los fondos propios exigidos a las entidades financieras en el nuevo Acuerdo de Capital, conocido como Basilea II. Con ello se pretende examinar el efecto de la garantía sobre la prima de riesgo que los bancos debieran cargar a sus empresas clientes, y si esta previsible disminución en los tipos de interés aplicables se ve compensada por el coste del aval para la PYME. Entre las principales conclusiones encontramos que, dado que el coste del aval de una SGR, en España, se sitúa en el 0,73%, a una PYME que acceda al mercado del crédito este aval le resultará rentable toda vez que la probabilidad de impago de la sociedad garante sea inferior al 1%, si el sistema aplicado por la entidad financiera para calcular su capital regulatorio se basa en la valoración interna del riesgo (enfoque IRB). En el caso de que el banco aplique el enfoque estándar, este límite se sitúa en el 2,5% aproximadamente.

Efectos del aval de las SGRs en la financiación de las PYME y los requerimientos de capital de Basilea II.

El objetivo del presente trabajo es analizar cómo influye el aval que las Sociedades de Garantía Recíproca (SGR) conceden a las Pequeñas y Medianas Empresas (PYME) en los fondos propios exigidos a las entidades financieras en el nuevo Acuerdo de Capital, conocido como Basilea II. Con ello se pretende examinar el efecto de la garantía sobre la prima de riesgo que los bancos debieran cargar a sus empresas clientes, y si esta previsible disminución en los tipos de interés aplicables se ve compensada por el coste del aval para la PYME. Entre las principales conclusiones encontramos que, dado que el coste del aval de una SGR, en España, se sitúa en el 0,73%, a una PYME que acceda al mercado del crédito este aval le resultará rentable toda vez que la probabilidad de impago de la sociedad garante sea inferior al 1%, si el sistema aplicado por la entidad financiera para calcular su capital regulatorio se basa en la valoración interna del riesgo (enfoque IRB). En el caso de que el banco aplique el enfoque estándar, este límite se sitúa en el 2,5% aproximadamente.The objective of this work is to analyse how the references that the Loan Guarantee Association (LGA) give to the Small and Medium Enterprises (SMEs) influence in the own funds that the International Convergence of Capital Measurement and Capital Standards. A Revised Framework (known as Basel II Accord) requires to the financial entities. With this, the authors intend to study the collateral’s effect on the premium risk that banks should charge to their corporate clients, and if this predictable reduction in the interest rate may be balanced by the cost of the reference for the SME. Among the main conclusions, we have found that, considering that the cost of the LGA’ reference is, in Spain, 0.73%, this reference would be economic for SMEs going to the credit market whereas the LGA’ probability of failing to pay is less than 1%, if the system used by the financial entity to calculate its regulatory capital is based on the Internal Risk Based Approach (IRB). In the case of the bank applying the standard approach, the limit is placed in 2.5% approximately.Financiación bancaria de las PYME; Capital regulatorio; Basilea II; Sociedad de Garantía Recíproca; Prima de riesgo; Banking Finance of SMEs; Regulatory Capital; Basel II Accord; Loan Guarantee Association; Premium Risk;

What do Basel Capital Accords mean for SMEs?

This paper analyses the impact of the new Basel Capital Accords (Basel II and Basel III) on the bank’s capital requirements in a portfolio of Small and Medium-sized Enterprises (SMEs) when the internal ratings-based (IRB) approach is used. To do this, the study uses a large database of Spanish firms and covers the period from 2005 to 2009. We also examine the effect on the credit risk premium charged by banks of the guarantee offered by a Loan Guarantee Association (LGA) to a SME; and whether this foreseeable decrease in the interest rates applicable to the SME is compensated by the cost of this guarante