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Measuring concentration risk for regulatory purposes

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  • Gürtler, Marc
  • Hibbeln, Martin
  • Vöhringer, Clemens

Abstract

The measurement of concentration risk in credit portfolios is necessary for the determination of regulatory capital under Pillar 2 of Basel II as well as for managing portfolios and allocating economic capital. Existing multi-factor models that deal with concentration risk are often inconsistent with the Pillar 1 capital requirements. Therefore, we adjust these models to achieve Basel II-compliant results. Within a simulation study we test the impact of sector concentrations on several portfolios and contrast the accuracy of the different models. In this context, we also compare Value at Risk and Expected Shortfall regarding their suitability to assess concentration risk.

Suggested Citation

  • Gürtler, Marc & Hibbeln, Martin & Vöhringer, Clemens, 2007. "Measuring concentration risk for regulatory purposes," Working Papers IF26V4, Technische Universität Braunschweig, Institute of Finance.
    • Handle: RePEc:zbw:tbsifw:if26v4
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    References listed on IDEAS

    as
    1. Peter Grundke, 2008. "Regulatory treatment of the double default effect under the New Basel Accord: how conservative is it?," Review of Managerial Science, Springer, vol. 2(1), pages 37-59, March.
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    5. Marc Gürtler & Dirk Heithecker & Martin Hibbeln, 2008. "Concentration Risk under Pillar 2: When are Credit Portfolios Infinitely Fine Grained?," Credit and Capital Markets, Credit and Capital Markets, vol. 41(1), pages 79-124.
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    More about this item

    Keywords

    Concentration Risk; Pillar 2; Multi-Factor Models; Economic Capital; Simulation Study; Value at Risk; Expected Shortfall;
    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

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