Interaction between market and credit risk: Focus on the endogeneity of aggregate risk
AbstractAs shown in the recent BCBS papers market and credit risks could reinforce each other in certain circumstances, meaning the sum of the parts might be less than an estimate of risk that takes into account the interactions between the two. Market risk factors have an ambiguous impact on the firms' repayment conditions because depreciation of domestic currency for instance favors exporters and harms importers. Within the task of a ‘top-down’ aggregation of market and credit risks this contribution presents a general framework to economic capital measurement and active portfolio management splitting exogenous risk factor influence throw different channels. The approach implies an exploiting of banks information about the clients' trade and cash flows related to global economic activity. The way to single out exposures to counterparties belonging to the same pattern of behavioural reactions to the market factors are considered as the bedrock of Factor endogenous behaviour aggregation (FEBA) approach.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 18245.
Date of creation: 08 Nov 2009
Date of revision:
integrated analysis of market and credit risk; risk management; endogenous behaviour; concentration risk.;
Find related papers by JEL classification:
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
- G20 - Financial Economics - - Financial Institutions and Services - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-11-14 (All new papers)
- NEP-BAN-2009-11-14 (Banking)
- NEP-RMG-2009-11-14 (Risk Management)
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.:
- Breuer, Thomas & Jandacka, Martin & Rheinberger, Klaus & Summer, Martin, 2008. "Regulatory capital for market and credit risk interaction: is current regulation always conservative?," Discussion Paper Series 2: Banking and Financial Studies 2008,14, Deutsche Bundesbank, Research Centre.
- Thérèse Laflèche, 1997. "The impact of exchange rate movements on consumer prices," Bank of Canada Review, Bank of Canada, vol. 1996(Winter), pages 21-32.
- Masschelein, Nancy & Düllmann, Klaus, 2006. "Sector concentration in loan portfolios and economic capital," Discussion Paper Series 2: Banking and Financial Studies 2006,09, Deutsche Bundesbank, Research Centre.
- Christoph B. Rosenberg & Marcel TirpÃ¡k, 2008. "Determinants of Foreign Currency Borrowing in the New Member States of the EU," IMF Working Papers 08/173, International Monetary Fund.
- Maria Soledad Martinez Peria & Giovanni Majnoni & Matthew T. Jones & Winfrid Blaschke, 2001. "Stress Testing of Financial Systems," IMF Working Papers 01/88, International Monetary Fund.
- Sokolov, Yuri, 2012. "Modeling risk in a dynamically changing world: from association to causation," MPRA Paper 40096, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.