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Credit Risk: Quantitative Impact

  • Ioannis Akkizidis
  • Lampros Kalyvas
Chapter

Abstract

The new credit risk specifications include, inter alia, the implementation of higher floors for the PD, LGD, and EAD in the IRBA models, which allow banks to estimate these parameters internally. It also requires the migration of certain exposures from the AIRBA to the FIRBA and SA. However, the utmost goal of the Basel reform package is the reduction of the variability of RWAs across time. These revisions target the reduction of the variability of RWAs across time, and implicitly amongst banks with similar portfolio risk profiles. The current chapter examines the quantitative impact of the structural changes that Basel introduces in the calculation of capital requirements under the FIRBA and AIRBA.

References

  1. Basel Committee on Banking Supervision (BCBS). (2016, March). Reducing variation in credit risk-weighted assets – Constraints on the use of internal model approaches – Consultative document. Retrieved from http://www.bis.org/bcbs/publ/d362.pdf
  2. Basel Committee on Banking Supervision (BCBS). (2017, December). Basel III: Finalising post-crisis reforms – Standards. Retrieved December 7, 2017, from https://www.bis.org/bcbs/publ/d424.pdf
  3. Bonsall, S., Koharki, K., Muller, K., & Sikochi, A. (2017). Credit rating adjustments prior to default and recovery rates. Harvard Business School. Retrieved from http://www.hbs.edu/faculty/conferences/2017-imo/Documents/Siko_BKMS_03_07_17.pdf
  4. Elizondo-Flores, J. A., Lemus-Basualdo, T., & Quintana-Sordo, A. R. (2010). Regulatory use of system-wide estimations of PD, LGD and EAD 2010. Financial Stability Institute (FSI) Award 2010 Winning Paper, Bank for International Settlements. Retrieved from http://www.bis.org/fsi/awp2010.pdf
  5. Johnston-Ross, E., & Shibut, L. (2015). What drives loss given default? Evidence from commercial real estate loans at failed banks. Federal Deposit Insurance Corporation (FDIC). Centre for Financial Research. Working Paper Series. FDIC CFR WP 2015-03. Retrieved September 2017, from https://www.fdic.gov/bank/analytical/cfr/2015/wp2015/2015-03.pdf

Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Ioannis Akkizidis
    • 1
  • Lampros Kalyvas
    • 2
  1. 1.Employed by Wolters KluwerZurichSwitzerland
  2. 2.Employed by European Banking AuthorityLondonUK

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