Credit Losses in Economic Downturns - Empirical Evidence for Hong Kong Mortgage Loans
AbstractRecent 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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Bibliographic InfoPaper 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:
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Basel II; Business Cycle; Capital Adequacy; Correlation; Credit Risk; Economic Downturn; Expected Loss; Fixed Income; Loss Given Default; Probability of Default; Value-at-Risk;
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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-25 (All new papers)
- NEP-BAN-2009-04-25 (Banking)
- NEP-RMG-2009-04-25 (Risk Management)
- NEP-URE-2009-04-25 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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