IDEAS home Printed from https://ideas.repec.org/p/bfr/analys/42.html
   My bibliography  Save this paper

How may risk weights differ across banks? Evidence from the corporate portfolios of French banks

Author

Listed:
  • Dietsch M.
  • Fraisse H.
  • Frappa S.

Abstract

This article analyses the dispersion of risk weights for large corporate portfolios and identifies the sources of dispersion among banks in terms of the Basel risk parameters. The analysis focuses on loans granted by 5 large French banking groups to large corporates operating in France and rated by several banks under the Advanced Internal Rating Based approach (the so-called AIRB approach). The analysis differs from the existing studies since it is based on a detailed dataset of common counterparties for the five banks. Since the comparison is done on identical counterparties, the differences in RW or in risk parameters are not related to the composition of loan portfolios. This article uses a unique dataset that has been collected by the APCR in 2012 through an ad hoc survey sent to banks regarding a sample of common counterparties among the five banks. The analysis shows that banks have similar RWA rates (Risk-Weighted Assets/Exposures at Default), except one bank which is more conservative than others. Regarding Probabilities of Default (PDs), the banks exhibit broadly similar levels of average PDs. But, for Loss Given Defaults (LGDs), there is a wider dispersion. The analysis also shows that the dispersion on the RWA rates is mainly due to differences in LGDs more than the other parameters. Part of the dispersion in LGDs may be related to differences across banks in their collateral policy as well as the inclusion of collateral in LGD calculation, and in the effectiveness of the recovery process in case of default. In addition, the regulatory provision to add margins of conservatism to cover the expected range of estimation errors, may also be an explanatory factor of this dispersion, as well as the calculation of the downturn LGD. If some differences observed in LGD estimates would appear unwarranted, it could be considered to improve harmonization by focusing supervision of internal models on LGDs and by providing more rules for their computation. Therefore, in the debate around the role of the AIRB approach, this article suggests that, instead of replacing this approach, the current framework for large corporates portfolios could rather be adapted to restore confidence in internal models.

Suggested Citation

  • Dietsch M. & Fraisse H. & Frappa S., 2015. "How may risk weights differ across banks? Evidence from the corporate portfolios of French banks," Analyse et synthèse 42, Banque de France.
  • Handle: RePEc:bfr:analys:42
    as

    Download full text from publisher

    File URL: http://acpr.banque-france.fr/fileadmin/user_upload/acp/publications/analyses-syntheses/20150311-AS42-how-may-risk-weights-differ-across-banks.pdf
    Download Restriction: no

    More about this item

    Keywords

    internal ratings; Basel regulation; risk-weighted assets.;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bfr:analys:42. 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: (Michael brassart). General contact details of provider: http://edirc.repec.org/data/bdfgvfr.html .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.