Downturn credit portfolio risk, regulatory capital and prudential incentives

Roesch, D; Scheule, H

Downturn credit portfolio risk, regulatory capital and prudential incentives

Roesch, D Scheule, H

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Publisher:: Blackwell
Publication Type:: Journal Article
Citation:: International Review of Finance, 2010, 10 (2), pp. 185 - 207
Issue Date:: 2010-01

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Field	Value	Language
dc.contributor.author	Roesch, D	en_US
dc.contributor.author	Scheule, H https://orcid.org/0000-0001-7283-5654	en_US
dc.date.issued	2010-01	en_US
dc.identifier.citation	International Review of Finance, 2010, 10 (2), pp. 185 - 207	en_US
dc.identifier.issn	1369-412X	en_US
dc.identifier.uri	http://hdl.handle.net/10453/29187
dc.description.abstract	This paper analyzes the level and cyclicality of bank capital requirement in relation to (i) the model methodologies through-the-cycle and point-in-time, (ii) four distinct downturn loss rate given default concepts, and (iii) US corporate and mortgage loans. The major finding is that less accurate models may lead to a lower bank capital requirement for real estate loans. In other words, the current capital regulations may not support the development of credit portfolio risk measurement models as these would lead to higher capital requirements and hence lower lending volumes. The finding explains why risk measurement techniques in real estate lending may be less developed than in other credit risk instruments. In addition, various policy recommendations for prudential regulators are made.	en_US
dc.publisher	Blackwell	en_US
dc.relation.ispartof	International Review of Finance	en_US
dc.relation.isbasedon	10.1111/j.1468-2443.2009.01102.x	en_US
dc.title	Downturn credit portfolio risk, regulatory capital and prudential incentives	en_US
dc.type	Journal Article
utslib.citation.volume	2	en_US
utslib.citation.volume	10	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	1501 Accounting, Auditing and Accountability	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	closed_access
pubs.consider-herdc	false	en_US
pubs.issue	2	en_US
pubs.volume	10	en_US

Abstract:

This paper analyzes the level and cyclicality of bank capital requirement in relation to (i) the model methodologies through-the-cycle and point-in-time, (ii) four distinct downturn loss rate given default concepts, and (iii) US corporate and mortgage loans. The major finding is that less accurate models may lead to a lower bank capital requirement for real estate loans. In other words, the current capital regulations may not support the development of credit portfolio risk measurement models as these would lead to higher capital requirements and hence lower lending volumes. The finding explains why risk measurement techniques in real estate lending may be less developed than in other credit risk instruments. In addition, various policy recommendations for prudential regulators are made.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/29187