IDEAS home Printed from https://ideas.repec.org/p/bis/biswps/1125.html
   My bibliography  Save this paper

Banks' credit loss forecasts: lessons from supervisory data

Author

Listed:
  • Martin Birn
  • Renzo Corrias
  • Christian Schmieder
  • Nikola Tarashev

Abstract

Focusing on credit risk, we compare banks' expected loss (EL) rates, collected confidentially by the Basel Committee on Banking Supervision from 2009 to 2022, and the corresponding actual loss (AL) rates, as reported in vendor data. Consistent with the use of through-the-cycle risk estimates for regulatory purposes, EL rates rarely move in line with AL rates over time, which helps explain a large precautionary element in Basel III capital requirements. We also find that the rank-order of EL rates across banks matches closely that of the AL rates, in line with recent and forthcoming regulatory efforts to improve risk-measurement practices. EL rates are more likely to be excessively optimistic on the heels of higher bank profitability and financial overheating, as captured by the credit-to-GDP gap.

Suggested Citation

  • Martin Birn & Renzo Corrias & Christian Schmieder & Nikola Tarashev, 2023. "Banks' credit loss forecasts: lessons from supervisory data," BIS Working Papers 1125, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:1125
    as

    Download full text from publisher

    File URL: https://www.bis.org/publ/work1125.pdf
    File Function: Full PDF document
    Download Restriction: no
    File URL: https://www.bis.org/publ/work1125.htm
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mikael Juselius & Nikola Tarashev, 2020. "Forecasting expected and unexpected losses," BIS Working Papers 913, Bank for International Settlements.
    2. Mr. Stijn Claessens & Mr. Luc Laeven & Ms. Deniz O Igan & Mr. Giovanni Dell'Ariccia, 2010. "Lessons and Policy Implications from the Global Financial Crisis," IMF Working Papers 2010/044, International Monetary Fund.
    3. repec:zbw:bofrdp:2020_018 is not listed on IDEAS
    4. Bernhard Herz & Jochen Keller, 2023. "How Do Regulators Set the Countercyclical Capital Buffer?," International Journal of Central Banking, International Journal of Central Banking, vol. 19(3), pages 99-137, August.
    5. Li Lian Ong & Min Wei & Christian Schmieder, 2023. "Insights into credit loss rates: a global database," BIS Working Papers 1101, Bank for International Settlements.
    6. Krüger, Steffen & Rösch, Daniel & Scheule, Harald, 2018. "The impact of loan loss provisioning on bank capital requirements," Journal of Financial Stability, Elsevier, vol. 36(C), pages 114-129.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Adi Masli & Matthew G. Sherwood & Rajendra P. Srivastava, 2018. "Attributes and Structure of an Effective Board of Directors: A Theoretical Investigation," Abacus, Accounting Foundation, University of Sydney, vol. 54(4), pages 485-523, December.
    2. Mardi Dungey & Gerald Dwyer & Thomas Flavin, 2013. "Systematic and Liquidity Risk in Subprime-Mortgage Backed Securities," Open Economies Review, Springer, vol. 24(1), pages 5-32, February.
    3. Cihak, Martin & Demirguc-Kunt, Asli & Peria, Maria Soledad Martinez & Mohseni-Cheraghlou, Amin, 2012. "Bank regulation and supervision around the world : a crisis update," Policy Research Working Paper Series 6286, The World Bank.
    4. Gaffney, Edward & McCann, Fergal, 2019. "The cyclicality in SICR: mortgage modelling under IFRS 9," ESRB Working Paper Series 92, European Systemic Risk Board.
    5. Nicolas Albacete & Peter Lindner, 2013. "Household Vulnerability in Austria – A Microeconomic Analysis Based on the Household Finance and Consumption Survey," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 25, pages 57-73.
    6. Omar H. M. N. Bashar & Omar K. M. R. Bashar, 2020. "Resource abundance, financial crisis and economic growth: did resource‐rich countries fare better during the global financial crisis?," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 64(2), pages 376-395, April.
    7. Borce Trenovski & Biljana Tashevska & Suzana Makreshanska, 2015. "The Global Economic Crisis - What Should Not Be Forgotten," Journal Articles, Center For Economic Analyses, pages 99-112, June.
    8. Steve Motsi & Oluseye Samuel Ajuwon & Collins Ntim, 2018. "Bank Competition in Sub-Saharan African Countries: Has Anything Changed in the Light of 2007-2008 Global FinancialCrisis?," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 68(1), pages 59-83, January-M.
    9. Bandyopadhyay, Satiprasad & Jha, Ranjini & Kennedy, Duane, 2017. "The effect of the US subprime crisis on Canadian banks," Advances in accounting, Elsevier, vol. 36(C), pages 58-74.
    10. Pandey, Ashish & Tripathi, Abhinava & Guhathakurta, Kousik, 2022. "The impact of banking regulations and accounting standards on estimating discretionary loan loss provisions," Finance Research Letters, Elsevier, vol. 44(C).
    11. Maurizio Trapanese & Sabrina Bellacci & Marcello Bofondi & Giuseppe DE Martino & Sebastiano Laviola & Valerio Vacca, 2023. "The interplay between large banks' prudential and resolution frameworks: do we need further improvements?," Questioni di Economia e Finanza (Occasional Papers) 807, Bank of Italy, Economic Research and International Relations Area.
    12. Baris Cinar & Omer Erdogan & Tugrul Gurgur & Tandogan Polat, 2010. "Kuresel Kriz ve Politika Uygulamalari," CBT Research Notes in Economics 1012, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    13. Stefanie Behncke, 2023. "Effects of Macroprudential Policies on Bank Lending and Credit Risks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 63(2), pages 175-199, April.
    14. Cetorelli, Nicola & Goldberg, Linda S., 2012. "Liquidity management of U.S. global banks: Internal capital markets in the great recession," Journal of International Economics, Elsevier, vol. 88(2), pages 299-311.
    15. Mathonnat, Clément & Williams, Benjamin, 2020. "Does more finance mean more inequality in times of crisis?," Economic Systems, Elsevier, vol. 44(4).
    16. Kim, Bong-Han & Kim, Hyeongwoo & Lee, Bong-Soo, 2015. "Spillover effects of the U.S. financial crisis on financial markets in emerging Asian countries," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 192-210.
    17. Degryse, Hans & Huylebroek, Cédric, 2023. "Fiscal support and banks’ loan loss provisions during the COVID-19 crisis," Journal of Financial Stability, Elsevier, vol. 67(C).
    18. Pfeifer, Lukáš & Hodula, Martin, 2021. "A profit-to-provisioning approach to setting the countercyclical capital buffer," Economic Systems, Elsevier, vol. 45(1).
    19. Shegorika Rajwani & Dilip Kumar, 2016. "Asymmetric Dynamic Conditional Correlation Approach to Financial Contagion: A Study of Asian Markets," Global Business Review, International Management Institute, vol. 17(6), pages 1339-1356, December.
    20. Borce Trenovski & Biljana Tashevska, 2019. "Lessons learned from the global recession - redesigned framework of key macroeconomic policies," International Journal of Business and Globalisation, Inderscience Enterprises Ltd, vol. 22(4), pages 468-489.

    More about this item

    Keywords

    expected loss forecasts; regulatory capital; portfolio credit risk;
    All these keywords.

    JEL classification:

    • 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
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

    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:bis:biswps:1125. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Beslmeisl (email available below). General contact details of provider: https://edirc.repec.org/data/bisssch.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.