Assessing the Risk of Multiple Defaults in the Banking System
Banks face different kinds of risks when conducting their business, such as interest rate risk, operational risk, payments and settlement risk, and credit risk. Among these risks, the assessment of credit risk of the banking system has long been one of the focuses of central banks from a financial stability perspective. For instance, since late 2004, both the Bank of England (BOE) and the European Central Bank (ECB) have published their estimated indicators based on the Merton-type model as part of the measures of banking system vulnerability in their regular Financial Stability Review (BOE 2004; ECB 2004).1 The International Monetary Fund (IMF) also reports similar indicators in its Global Financial Stability Report (IMF 2004, 2005).
KeywordsInternational Monetary Fund Banking System Credit Risk Systemic Risk Banking Sector
Unable to display preview. Download preview PDF.
- Bank of England, Financial Stability Review, June (2004).Google Scholar
- European Central Bank, Financial Stability Review, December (2004).Google Scholar
- W. Feller, An Introduction to Probability Theory and Its Applications ( New York: John Wiley, 1950 ).Google Scholar
- International Monetary Fund (IMF), Global Financial Stability Report, September ( Washington, DC: IMF, 2004 ).Google Scholar
- International Monetary Fund (IMF), Global Financial Stability Report, April ( Washington, DC: IMF, 2005 ).Google Scholar
- J.P. Morgan & Co., Risk Metrics–Technical Document, 3rd edn, May 26 ( New York; J.P. Morgan, 1995 ).Google Scholar
- R. C. Merton, ‘On the Pricing of Corporate Debt: the Risk Structure of Interest Rates’, Journal of Finance, 29 (2) (1974) 449–70.Google Scholar
- W. R. Nelson and R. Perli, ‘Selected Indicators of Financial Stability’, Irving Fisher Committee’s Bulletin on Central Bank Statistics, 23 (2005) 92–105.Google Scholar
- I. W. Yu and L. Fung, ‘A Structural Approach to Assessing the Credit Risk of Hong Kong’s Corporate Sector’, HKMA Research Memorandum, 24/2005.Google Scholar