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Bank Credit Risk Management and Rating Migration Analysis on the Business Cycle

Listed author(s):
  • Dimitris Gavalas

    ()

    (Shipping, Trade & Transport Department, Business School, University of Aegean, Chios 82100, Greece)

  • Theodore Syriopoulos

    ()

    (Shipping, Trade & Transport Department, Business School, University of Aegean, Chios 82100, Greece
    Audencia Nantes School of Management, Nantes Cedex 3 44312, France)

Credit risk measurement remains a critical field of top priority in banking finance, directly implicated in the recent global financial crisis. This paper examines the dynamic linkages between credit risk migration due to rating shifts and prevailing macroeconomic conditions, reflected in alternative business cycle states. An innovative empirical methodology applies to bank internal rating data, under different economic scenarios and investigates the implications of credit risk quality shifts for risk rating transition matrices. The empirical findings are useful and critical for banks to align to Basel guidelines in relation to core capital requirements and risk-weighted assets in the underlying loan portfolio.

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Article provided by MDPI, Open Access Journal in its journal International Journal of Financial Studies.

Volume (Year): 2 (2014)
Issue (Month): 1 (March)
Pages: 1-22

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Handle: RePEc:gam:jijfss:v:2:y:2014:i:1:p:122-143:d:33616
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