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Loan portfolio loss distribution: Basel II unifactorial approach vs. Non parametric estimations

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  • Rodríguez Dupuy, Analía
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    Abstract

    This paper analyzes the measurement of credit risk capital requirements under the new Basel Accord (Basel II): the Internal Rating Based approach (IRB). It focuses in the analytical formula for its calculation, since its derivation to the main assumptions behind it. We also estimate the credit loss distribution for the Uruguayan portfolio in the period 1999-2006, using a non parametric technique, the bootstrap. Its main advantage is that we don’t need to make any assumptions about the form of the distribution. Finally, we compare the requirements obtained using the IRB with the estimated ones, as an approximation of the application of the IRB in the Uruguayan financial system.

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    File URL: http://mpra.ub.uni-muenchen.de/10697/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10697.

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    Date of creation: Oct 2007
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    Handle: RePEc:pra:mprapa:10697

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    Keywords: Basel II - Bootstrap - Credit loss distribution;

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    1. Powell, Andrew, 2002. "A capital accord for emerging economies?," Policy Research Working Paper Series 2808, The World Bank.
    2. Carey, Mark, 2002. "A guide to choosing absolute bank capital requirements," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 929-951, May.
    3. Gordy, Michael B., 2003. "A risk-factor model foundation for ratings-based bank capital rules," Journal of Financial Intermediation, Elsevier, vol. 12(3), pages 199-232, July.
    4. Mark Carey, 1998. "Credit Risk in Private Debt Portfolios," Journal of Finance, American Finance Association, vol. 53(4), pages 1363-1387, 08.
    5. Hamerle, Alfred & Liebig, Thilo & Rösch, Daniel, 2003. "Credit Risk Factor Modeling and the Basel II IRB Approach," Discussion Paper Series 2: Banking and Financial Studies 2003,02, Deutsche Bundesbank, Research Centre.
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    7. Anil Kashyap & Jeremy C. Stein, 2004. "Cyclical implications of the Basel II capital standards," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 18-31.
    8. Dietsch, Michel & Petey, Joel, 2004. "Should SME exposures be treated as retail or corporate exposures? A comparative analysis of default probabilities and asset correlations in French and German SMEs," Journal of Banking & Finance, Elsevier, vol. 28(4), pages 773-788, April.
    9. Philip Lowe & Miguel A. Segoviano, 2002. "Internal ratings, the business cycle and capital requirements: some evidence from an emerging market economy," BIS Working Papers 117, Bank for International Settlements.
    10. Miguel Angel Segoviano & Philip Lowe, 2002. "Internal ratings, the business cycle, and capital requirements: some evidence from an emerging market economy," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
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    12. Gordy, Michael B. & Howells, Bradley, 2006. "Procyclicality in Basel II: Can we treat the disease without killing the patient?," Journal of Financial Intermediation, Elsevier, vol. 15(3), pages 395-417, July.
    13. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
    14. Mark Carey, 2002. "A guide to choosing absolute bank capital requirements," International Finance Discussion Papers 726, Board of Governors of the Federal Reserve System (U.S.).
    15. Gutierrez Girault, Matias, 2006. "Non – parametric estimation of conditional and unconditional loan portfolio loss distributions with public credit registry data," MPRA Paper 9798, University Library of Munich, Germany, revised Jun 2007.
    16. Mark Carey, 2000. "Dimensions of credit risk and their relationship to economic capital requirements," Finance and Economics Discussion Series 2000-18, Board of Governors of the Federal Reserve System (U.S.).
    17. Jacobson, Tor & Lindé, Jesper & Roszbach, Kasper, 2004. "Credit Risk versus Capital Requirements under Basel II: Are SME Loans and Retail Credit Really Different?," Working Paper Series 162, Sveriges Riksbank (Central Bank of Sweden).
    18. Stephanou, Constantinos & Mendoza, Juan Carlos, 2005. "Credit risk measurement under Basel II : an overview and implementation issues for developing countries," Policy Research Working Paper Series 3556, The World Bank.
    19. Mark Carey, 2000. "Dimensions of Credit Risk and Their Relationship to Economic Capital Requirements," NBER Working Papers 7629, National Bureau of Economic Research, Inc.
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