On the Use of Portfolio Risk Models and Capital Requirements in Emerging Markets : The Case of Argentina
A portfolio based model (Credit Risk of Credit Suisse First Boston) and recent Central Bank of Argentina credit bureau data are used to estimate whether current capital and provisioning regulations match actual risks. Arguing that provisions should...
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| Format: | Journal Article |
| Language: | English en_US |
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Washington, DC: World Bank
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2002/05/17737765/financial-crises-credit-ratings-bank-failures-use-portfolio-risk-models-capital-requirements-emerging-markets-case-argentina http://hdl.handle.net/10986/17201 |
| id |
okr-10986-17201 |
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| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ACCOUNTING ACCURATE INFORMATION ADMINISTRATIVE COSTS ASSETS BALANCE SHEETS BANK FAILURES BANK LOANS BANKING INDUSTRY BANKING REGULATIONS BANKING SUPERVISION BANKING SYSTEM BANKS BORROWER CAPITAL ADEQUACY CAPITAL ALLOCATION CAPITAL ALLOCATIONS CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CASH FLOW CENTRAL BANK COLLATERAL COMMERCIAL BANKS COMMERCIAL LOANS COMPARATIVE ANALYSIS CONSUMER LOANS CREDIT BUREAU CREDIT HISTORY CREDIT INFORMATION CREDIT LOSS CREDIT LOSSES CREDIT QUALITY CREDIT RATINGS CREDIT REPORTING CREDIT REPORTING SYSTEMS CREDIT RISK CREDIT RISK ASSESSMENT CREDIT RISK MANAGEMENT CREDIT RISK MODELING CURRENCY DEBT INTEREST DEBTOR DEBTORS DEBTS DEFAULT PROBABILITIES DEFAULT RATE DEFAULTS DEPOSITS DISTRIBUTION OF CREDIT DIVERSIFIED PORTFOLIO DIVIDEND DIVIDENDS DOMESTIC BANKS DUMMY VARIABLE EMERGING MARKETS EQUITY CAPITAL EXCHANGE RATE EXCHANGE RATES EXPECTED VALUE FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE BANK OF NEW YORK FINANCIAL CRISES FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL STABILITY FINANCIAL SYSTEM FOREIGN EXCHANGE FOREIGN EXCHANGE RISK FUTURE CREDIT HOUSING HUMAN RESOURCES INCOME] RECOGNITION INDIVIDUAL BANKS INDIVIDUAL DEBTORS INDIVIDUAL DEBTS INDIVIDUAL LOAN INDIVIDUAL LOANS INTEREST INCOME INTEREST MARGIN INTEREST RATE INTEREST RATE RISK INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL CAPITAL LENDER LENDERS LENDING INSTITUTIONS LENDING REQUIREMENTS LEVEL OF CREDIT LEVEL OF RISK LIQUIDITY LOAN LOAN ACCOUNTING LOAN BALANCE LOAN CLASSIFICATIONS LOAN DEFAULTS LOAN LOSSES LOAN PORTFOLIO LOAN PORTFOLIOS MARKET RISK MATURITY MAXIMUM LIKELIHOOD ESTIMATION NEGOTIATIONS NONPERFORMING LOANS OPERATIONAL RISK PORTFOLIO PORTFOLIO RISK PORTFOLIOS PRIVATE BANKS PRIVATE CREDIT PRIVATE FINANCIAL INSTITUTIONS PROBABILITY OF DEFAULT PROBABILITY OF INSOLVENCY PRUDENTIAL STANDARDS RECOVERY RATE REGULATORY POLICY REMEDY RESERVE RESERVES RETAINED EARNINGS RETURN RETURNS RISK CAPITAL RISK FACTOR RISK FACTORS RISK OF DEFAULT RISKY LOANS SHAREHOLDERS SOLVENCY STRUCTURE OF DEBTS SUBORDINATED DEBT SUPPLEMENTARY CAPITAL TAX TOTAL DEBT VALUE AT RISK MODELS WILLINGNESS TO PAY |
| spellingShingle |
ACCOUNTING ACCURATE INFORMATION ADMINISTRATIVE COSTS ASSETS BALANCE SHEETS BANK FAILURES BANK LOANS BANKING INDUSTRY BANKING REGULATIONS BANKING SUPERVISION BANKING SYSTEM BANKS BORROWER CAPITAL ADEQUACY CAPITAL ALLOCATION CAPITAL ALLOCATIONS CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CASH FLOW CENTRAL BANK COLLATERAL COMMERCIAL BANKS COMMERCIAL LOANS COMPARATIVE ANALYSIS CONSUMER LOANS CREDIT BUREAU CREDIT HISTORY CREDIT INFORMATION CREDIT LOSS CREDIT LOSSES CREDIT QUALITY CREDIT RATINGS CREDIT REPORTING CREDIT REPORTING SYSTEMS CREDIT RISK CREDIT RISK ASSESSMENT CREDIT RISK MANAGEMENT CREDIT RISK MODELING CURRENCY DEBT INTEREST DEBTOR DEBTORS DEBTS DEFAULT PROBABILITIES DEFAULT RATE DEFAULTS DEPOSITS DISTRIBUTION OF CREDIT DIVERSIFIED PORTFOLIO DIVIDEND DIVIDENDS DOMESTIC BANKS DUMMY VARIABLE EMERGING MARKETS EQUITY CAPITAL EXCHANGE RATE EXCHANGE RATES EXPECTED VALUE FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE BANK OF NEW YORK FINANCIAL CRISES FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL STABILITY FINANCIAL SYSTEM FOREIGN EXCHANGE FOREIGN EXCHANGE RISK FUTURE CREDIT HOUSING HUMAN RESOURCES INCOME] RECOGNITION INDIVIDUAL BANKS INDIVIDUAL DEBTORS INDIVIDUAL DEBTS INDIVIDUAL LOAN INDIVIDUAL LOANS INTEREST INCOME INTEREST MARGIN INTEREST RATE INTEREST RATE RISK INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL CAPITAL LENDER LENDERS LENDING INSTITUTIONS LENDING REQUIREMENTS LEVEL OF CREDIT LEVEL OF RISK LIQUIDITY LOAN LOAN ACCOUNTING LOAN BALANCE LOAN CLASSIFICATIONS LOAN DEFAULTS LOAN LOSSES LOAN PORTFOLIO LOAN PORTFOLIOS MARKET RISK MATURITY MAXIMUM LIKELIHOOD ESTIMATION NEGOTIATIONS NONPERFORMING LOANS OPERATIONAL RISK PORTFOLIO PORTFOLIO RISK PORTFOLIOS PRIVATE BANKS PRIVATE CREDIT PRIVATE FINANCIAL INSTITUTIONS PROBABILITY OF DEFAULT PROBABILITY OF INSOLVENCY PRUDENTIAL STANDARDS RECOVERY RATE REGULATORY POLICY REMEDY RESERVE RESERVES RETAINED EARNINGS RETURN RETURNS RISK CAPITAL RISK FACTOR RISK FACTORS RISK OF DEFAULT RISKY LOANS SHAREHOLDERS SOLVENCY STRUCTURE OF DEBTS SUBORDINATED DEBT SUPPLEMENTARY CAPITAL TAX TOTAL DEBT VALUE AT RISK MODELS WILLINGNESS TO PAY Balzarotti, Veronica Falkenheim, Michael Powell, Andrew On the Use of Portfolio Risk Models and Capital Requirements in Emerging Markets : The Case of Argentina |
| geographic_facet |
Latin America & Caribbean ARGENTINA |
| description |
A portfolio based model (Credit Risk of
Credit Suisse First Boston) and recent Central Bank of
Argentina credit bureau data are used to estimate whether
current capital and provisioning regulations match actual
risks. Arguing that provisions should cover expected losses
and that capital requirements should cover potential losses
beyond expected losses subject to some statistical level of
tolerance, the article assesses how well actual capital and
provisioning requirements match the estimated requirements
given by the model. Actual provisioning requirements were
found to be close to implied levels of expected losses. The
estimate of potential losses was found to be highly
sensitive to the assumptions of the model, especially the
parameter relating the volatility of a loan's rate of
default to its mean value. This volatility parameter cannot
be estimated accurately with the credit bureau data because
of the short time span covered, so proxy data were used to
estimate it, and two values around that estimate were tried.
The difficulty of estimating this critical parameter implies
that the results should only be regarded as suggestive.
Moreover, the methodology only does not seek to estimate
credit risk and not interest rate risk or exchange rate
risk, nor does it fully take into account the indirect
effects of interest rates and exchange rates on credit risk.
As recent events in Argentina have demonstrated, estimating
credit risk along these lines should be thought of as just
one tool in attempting to assess the appropriate level of
bank provisions and capital. |
| format |
Journal Article |
| author |
Balzarotti, Veronica Falkenheim, Michael Powell, Andrew |
| author_facet |
Balzarotti, Veronica Falkenheim, Michael Powell, Andrew |
| author_sort |
Balzarotti, Veronica |
| title |
On the Use of Portfolio Risk Models and Capital Requirements in Emerging Markets : The Case of Argentina |
| title_short |
On the Use of Portfolio Risk Models and Capital Requirements in Emerging Markets : The Case of Argentina |
| title_full |
On the Use of Portfolio Risk Models and Capital Requirements in Emerging Markets : The Case of Argentina |
| title_fullStr |
On the Use of Portfolio Risk Models and Capital Requirements in Emerging Markets : The Case of Argentina |
| title_full_unstemmed |
On the Use of Portfolio Risk Models and Capital Requirements in Emerging Markets : The Case of Argentina |
| title_sort |
on the use of portfolio risk models and capital requirements in emerging markets : the case of argentina |
| publisher |
Washington, DC: World Bank |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2002/05/17737765/financial-crises-credit-ratings-bank-failures-use-portfolio-risk-models-capital-requirements-emerging-markets-case-argentina http://hdl.handle.net/10986/17201 |
| _version_ |
1764433108714651648 |
| spelling |
okr-10986-172012021-04-23T14:03:29Z On the Use of Portfolio Risk Models and Capital Requirements in Emerging Markets : The Case of Argentina Balzarotti, Veronica Falkenheim, Michael Powell, Andrew ACCOUNTING ACCURATE INFORMATION ADMINISTRATIVE COSTS ASSETS BALANCE SHEETS BANK FAILURES BANK LOANS BANKING INDUSTRY BANKING REGULATIONS BANKING SUPERVISION BANKING SYSTEM BANKS BORROWER CAPITAL ADEQUACY CAPITAL ALLOCATION CAPITAL ALLOCATIONS CAPITAL REQUIREMENT CAPITAL REQUIREMENTS CASH FLOW CENTRAL BANK COLLATERAL COMMERCIAL BANKS COMMERCIAL LOANS COMPARATIVE ANALYSIS CONSUMER LOANS CREDIT BUREAU CREDIT HISTORY CREDIT INFORMATION CREDIT LOSS CREDIT LOSSES CREDIT QUALITY CREDIT RATINGS CREDIT REPORTING CREDIT REPORTING SYSTEMS CREDIT RISK CREDIT RISK ASSESSMENT CREDIT RISK MANAGEMENT CREDIT RISK MODELING CURRENCY DEBT INTEREST DEBTOR DEBTORS DEBTS DEFAULT PROBABILITIES DEFAULT RATE DEFAULTS DEPOSITS DISTRIBUTION OF CREDIT DIVERSIFIED PORTFOLIO DIVIDEND DIVIDENDS DOMESTIC BANKS DUMMY VARIABLE EMERGING MARKETS EQUITY CAPITAL EXCHANGE RATE EXCHANGE RATES EXPECTED VALUE FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE BANK OF NEW YORK FINANCIAL CRISES FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL STABILITY FINANCIAL SYSTEM FOREIGN EXCHANGE FOREIGN EXCHANGE RISK FUTURE CREDIT HOUSING HUMAN RESOURCES INCOME] RECOGNITION INDIVIDUAL BANKS INDIVIDUAL DEBTORS INDIVIDUAL DEBTS INDIVIDUAL LOAN INDIVIDUAL LOANS INTEREST INCOME INTEREST MARGIN INTEREST RATE INTEREST RATE RISK INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL CAPITAL LENDER LENDERS LENDING INSTITUTIONS LENDING REQUIREMENTS LEVEL OF CREDIT LEVEL OF RISK LIQUIDITY LOAN LOAN ACCOUNTING LOAN BALANCE LOAN CLASSIFICATIONS LOAN DEFAULTS LOAN LOSSES LOAN PORTFOLIO LOAN PORTFOLIOS MARKET RISK MATURITY MAXIMUM LIKELIHOOD ESTIMATION NEGOTIATIONS NONPERFORMING LOANS OPERATIONAL RISK PORTFOLIO PORTFOLIO RISK PORTFOLIOS PRIVATE BANKS PRIVATE CREDIT PRIVATE FINANCIAL INSTITUTIONS PROBABILITY OF DEFAULT PROBABILITY OF INSOLVENCY PRUDENTIAL STANDARDS RECOVERY RATE REGULATORY POLICY REMEDY RESERVE RESERVES RETAINED EARNINGS RETURN RETURNS RISK CAPITAL RISK FACTOR RISK FACTORS RISK OF DEFAULT RISKY LOANS SHAREHOLDERS SOLVENCY STRUCTURE OF DEBTS SUBORDINATED DEBT SUPPLEMENTARY CAPITAL TAX TOTAL DEBT VALUE AT RISK MODELS WILLINGNESS TO PAY A portfolio based model (Credit Risk of Credit Suisse First Boston) and recent Central Bank of Argentina credit bureau data are used to estimate whether current capital and provisioning regulations match actual risks. Arguing that provisions should cover expected losses and that capital requirements should cover potential losses beyond expected losses subject to some statistical level of tolerance, the article assesses how well actual capital and provisioning requirements match the estimated requirements given by the model. Actual provisioning requirements were found to be close to implied levels of expected losses. The estimate of potential losses was found to be highly sensitive to the assumptions of the model, especially the parameter relating the volatility of a loan's rate of default to its mean value. This volatility parameter cannot be estimated accurately with the credit bureau data because of the short time span covered, so proxy data were used to estimate it, and two values around that estimate were tried. The difficulty of estimating this critical parameter implies that the results should only be regarded as suggestive. Moreover, the methodology only does not seek to estimate credit risk and not interest rate risk or exchange rate risk, nor does it fully take into account the indirect effects of interest rates and exchange rates on credit risk. As recent events in Argentina have demonstrated, estimating credit risk along these lines should be thought of as just one tool in attempting to assess the appropriate level of bank provisions and capital. 2014-03-04T17:11:49Z 2014-03-04T17:11:49Z 2002-05 Journal Article http://documents.worldbank.org/curated/en/2002/05/17737765/financial-crises-credit-ratings-bank-failures-use-portfolio-risk-models-capital-requirements-emerging-markets-case-argentina World Bank Economic Review http://hdl.handle.net/10986/17201 English en_US CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Washington, DC: World Bank Publications & Research :: Journal Article Publications & Research Latin America & Caribbean ARGENTINA |