Daniel Rosch (Leibniz University of Hannover) Harald Scheule (University of Melbourne)
Abstract
Recent studies find a positive correlation between default and loss given default rates of credit portfolios. In response, financial regulators require financial institutions to base their capital on the 'Downturn' loss rate given default which is also known as Downturn LGD. This article proposes a concept for the Downturn LGD which incorporates econometric properties of credit risk as well as the information content of default and loss given default models. The concept is compared to an alternative proposal by the Department of the Treasury, the Federal Reserve System and the Federal Insurance Corporation. An empirical analysis is provided for Hong Kong mortgage loan portfolios.
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Publisher Info
Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number
152008.
Length: 19 pages Date of creation: Aug 2008 Date of revision: Handle: RePEc:hkm:wpaper:152008
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Find related papers by JEL classification: G20 - Financial Economics - - Financial Institutions and Services - - - General G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
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