Credit Losses in Economic Downturns - Empirical Evidence for Hong Kong Mortgage Loans
Recent studies find a positive correlation between default and loss given default rates of credit portfolios. In response, financial regulators require financial institutions to base their capital on the 'Downturn' loss rate given default which is also known as Downturn LGD. This article proposes a concept for the Downturn LGD which incorporates econometric properties of credit risk as well as the information content of default and loss given default models. The concept is compared to an alternative proposal by the Department of the Treasury, the Federal Reserve System and the Federal Insurance Corporation. An empirical analysis is provided for Hong Kong mortgage loan portfolios.
|Date of creation:||Aug 2008|
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- Laeven, Luc & Majnoni, Giovanni, 2003.
"Loan loss provisioning and economic slowdowns: too much, too late?,"
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- Mark Carey, 1998. "Credit Risk in Private Debt Portfolios," Journal of Finance, American Finance Association, vol. 53(4), pages 1363-1387, 08. Full references (including those not matched with items on IDEAS)
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