Advanced Search
MyIDEAS: Login

Regulatory capital for market and credit risk interaction: is current regulation always conservative?

Contents:

Author Info

  • Breuer, Thomas
  • Jandacka, Martin
  • Rheinberger, Klaus
  • Summer, Martin

Abstract

In the work of the Basel Committee there has been a tradition of distinguishing market from credit risk and to treat both categories independently in the calculation of risk capital. In practice positions in a portfolio depend simultaneously on both market and credit risk factors. In this case, an approximation of the portfolio value function splitting value changes into a pure market risk plus pure credit risk component can lead to underestimation of risk. It can therefore not be argued that the current regulatory approach would always be conservative from a risk assessment perspective. We discuss this fact in the context of foreign currency loans and argue that under the traditional regulatory approach the true risk of a portfolio of foreign currency loans would be significantly underestimated. -- Unter der ersten Säule von Basel II wird das regulatorische Eigenkapital für Markt- und Kreditrisiko separat berechnet. Wenn wir vom operationalen Risiko absehen, errechnet sich das gesamte regulatorische Eigenkapital aus der Summe des Eigenkapitals, das für Markt- und Kreditrisiko zu hinterlegen ist. Diese Berechnung von Einzelkomponenten des regulatorischen Kapitals folgt in groben Zügen der Aufteilung in Bank- und Handelsbuch. In der traditionellen Denkweise ist Kreditrisiko hauptsächlich relevant in Bezug auf das Bankbuch während Marktrisiko als hauptsächlich relevant für das Handelsbuch angesehen wird. Diese Denkweise steht vermutlich auch hinter der weit verbreiteten Ansicht, dass die Aufsummierung von Kapitalkomponenten für einzelne Risikokategorien konservativ sei. Werden nämlich Bank- und Handelsbuch als Subportfolios des gesamten Bankportfolios gesehen, ergibt die Aufsummierung der einzelnen regulatorischen Kapitalkomponenten aufgrund eines Diversifikationsarguments eine obere Schranke für das regulatorische Eigenkapital. Wir behaupten, dass in vielen praktischen Risikobewertungssituationen eine Trennung von Markt- und Kreditrisiko anhand von Bank- und Handelsbuch nicht möglich ist. Wir zeigen, dass das Diversifizierungsargument aber nur dann gilt, wenn eine solche Aufteilung möglich ist. Nur dann, wenn das Bankportfolio separierbar ist in ein Subportfolio, das nur von Marktrisikofaktoren, nicht aber von Kreditrisikofaktoren abhängt und in ein Subportfolio, das nur von Kreditrisikofaktoren, nicht aber von Marktrisikofaktoren abhängt, ist das tatsächlich benötigte regulatorische Kapital kleiner oder gleich der Summe des Kapitals für Markt und Kreditrisiko. Ist diese Separation nicht möglich, kann unter dem Verfahren von Säule 1 das regulatorische Eigenkapital unterschätzt werden. Wir zeigen, dass in vielen Situationen Portfoliopositionen sowohl von Markt- als auch vom Kreditrisiko abhängen. In einer solchen Situation führt die traditionelle Berechnung des regulatorischen Eigenkapitals zu einer falschen Portfoliobewertung und als Konsequenz zu einer falschen Risikoeinschätzung. Wir zeigen anhand des Beispiels von Fremdwährungskrediten, dass diese Fehleinschätzung quantitativ bedeutend sein kann und zu einer schweren Unterschätzung des wahren Portfoliorisikos führt.

Download Info

If 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.
File URL: http://econstor.eu/bitstream/10419/19791/1/200814dkp_b_.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 2: Banking and Financial Studies with number 2008,14.

as in new window
Length:
Date of creation: 2008
Date of revision:
Handle: RePEc:zbw:bubdp2:7324

Contact details of provider:
Postal: Postfach 10 06 02, 60006 Frankfurt
Phone: 0 69 / 95 66 - 34 55
Fax: 0 69 / 95 66 30 77
Email:
Web page: http://www.bundesbank.de/
More information through EDIRC

Related research

Keywords: integrated analysis of market and credit risk; risk management; foreign currency loans; banking regulation;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-70, May.
  2. Carlo Acerbi & Dirk Tasche, 2001. "On the coherence of Expected Shortfall," Papers cond-mat/0104295, arXiv.org, revised May 2002.
  3. Pesaran, M. Hashem & Shin, Yongcheol & Smith, Richard J., 2000. "Structural analysis of vector error correction models with exogenous I(1) variables," Journal of Econometrics, Elsevier, vol. 97(2), pages 293-343, August.
  4. Sanjiv Das & Darrell Duffie & Nikunj Kapadia & Leandro Saita, 2006. "Common Failings: How Corporate Defaults are Correlated," NBER Working Papers 11961, National Bureau of Economic Research, Inc.
  5. Pesaran, M.H. & Weiner, S.M., 2001. "Modelling Regional Interdependencies Using a Global Error-Correcting Macroeconometric Model," Cambridge Working Papers in Economics 0119, Faculty of Economics, University of Cambridge.
  6. Barnhill Jr., Theodore M. & Maxwell, William F., 2002. "Modeling correlated market and credit risk in fixed income portfolios," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 347-374, March.
  7. Joshua V. Rosenberg & Til Schuermann, 2004. "A general approach to integrated risk management with skewed, fat-tailed risks," Staff Reports 185, Federal Reserve Bank of New York.
  8. M. Hashem Pesaran & Til Schuermann & Björn-Jakob Treutler, 2005. "Global Business Cycles and Credit Risk," NBER Working Papers 11493, National Bureau of Economic Research, Inc.
  9. Jarrow, Robert A. & Turnbull, Stuart M., 2000. "The intersection of market and credit risk," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 271-299, January.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Sokolov, Yuri, 2009. "Interaction between market and credit risk: Focus on the endogeneity of aggregate risk," MPRA Paper 18245, University Library of Munich, Germany.
  2. Sokolov, Yuri, 2012. "Modeling risk in a dynamically changing world: from association to causation," MPRA Paper 40096, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:bubdp2:7324. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.