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Regulatory capital for credit risk: Is there a loophole in the system?

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  • Abhishek Teji

    (Universidad de Barcelona, Barcelona – España)

Abstract

Given the Spanish housing and mortgage market, there is an important incentive for young property buyers to exceed the debt-to-income (DTI) ratio, using a loophole in the database, CIRBE. The objective of this paper is to analyse whether there could be a possibility of a loophole in the system and therefore how it could affect the calculation of regulatory capital for credit risk requirements. The main hypothesis is that if this practice is commonly used by the borrowers, then there could be a significant difference between the VaR calculated by the banks and the actual VaR needed to cover the regulatory capital.

Suggested Citation

  • Abhishek Teji, 2023. "Regulatory capital for credit risk: Is there a loophole in the system?," Revista de Economía y Finanzas (REyF), Asociación Cuadernos de Economía, vol. 1(2), pages 135-148, Mayo.
    • Handle: RePEc:cud:journ2:v:1:y:2023:i:2:p:135-148
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    More about this item

    Keywords

    CIRBE; Value-at-risk; Loophole; Credit risk; Regulatory capital;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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