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Journal of Financial Services Research

, Volume 32, Issue 1–2, pp 81–101 | Cite as

An Assessment of Basel II Procyclicality in Mortgage Portfolios

  • Jesús Saurina
  • Carlos TrucharteEmail author
Article

Abstract

In this paper we develop a probability of default (PD) model for mortgage loans, taking advantage of the Spanish Credit Register, a comprehensive database on loan characteristics and credit quality. From that model, we calculate different types of PDs: point in time, PIT, through the cycle, TTC, average across the cycle and acyclical. Then, we compare capital requirements coming from the different Basel II approaches. We show that minimum regulatory capital under Basel II can be very sensitive to the risk measurement methodology employed. Thus, the procyclicality of regulatory capital requirements under Basel II is an open question, depending on the way internal rating systems are implemented and their output is utilised. We focus on the mortgage portfolio since it is one of the most under researched areas regarding the impact of Basel II and because it is one of the most important of banks’ portfolios.

Keywords

Procyclicality Basel II rating systems mortgages 

JEL Classifications

E32 G18 G21 

Notes

Acknowledgments

The authors gratefully acknowledge useful and helpful comments from W. Francis, G. Jiménez, P. Kupiec, W. Lang, G. Pennacchi, R. Repullo, A. Rodríguez, H. Unal, an anonymous referee, and those of participants at the FDIC 6th Bank Research Conference. Authors also recognize editorial assistance by J. Rogers.

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Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.Bank of SpainMadridSpain

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