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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Dimitris Gavalas & Theodore Syriopoulos, 2014. "Bank Credit Risk Management and Rating Migration Analysis on the Business Cycle," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 2(1), pages 1-22, March.
  • Handle: RePEc:gam:jijfss:v:2:y:2014:i:1:p:122-143:d:33616
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    References listed on IDEAS

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    1. repec:blg:reveco:v:69:y:2017:i:2:p:73-86 is not listed on IDEAS

    More about this item

    Keywords

    credit rating migration; business cycles; stress testing; Basel guidelines;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • F2 - International Economics - - International Factor Movements and International Business
    • F3 - International Economics - - International Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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