Credit Risk and Capital Requirements for the Portuguese Banking System

Abstract

In this study, an assessment of the impact of Basel II capital requirement rules driven by credit risk of non-financial firms is performed. Intervals of variation for the risk drivers are established such that capital requirements for firms' credit risk under Basel II exceed capital requirements under Basel I. Moreover, a characterization of the Portuguese Banking system, which includes a description of corporate credit and its associated probabilities of default, and the computation of capital requirements are performed.