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Estimation of Regulatory Credit Risk Models

Author

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  • Carlos Pérez Montes

    (Banco de España)

Abstract

This article estimates a general credit risk model with both macroeconomic and latent credit factors for Spanish banks during the period 2004-2010. The proposed framework allows to estimate with bank level data both the standard credit risk model of Basel II and generalized models. I fi nd evidence of persistence in the credit latent factor and of a signifi cant effect of GDP growth and interbank rates on loan default rates. The estimated default correlation is low across specifications. The model is also used to calculate the impact on the probabilities of default of stressed economic scenarios.

Suggested Citation

  • Carlos Pérez Montes, 2013. "Estimation of Regulatory Credit Risk Models," Working Papers 1305, Banco de España;Working Papers Homepage.
  • Handle: RePEc:bde:wpaper:1305
    as

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/13/Fich/dt1305e.pdf
    File Function: First version, March 2013
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    credit risk; default correlation; stress test; state space model; bootstrap; MLE;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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