Credit Risk Dynamics of Infrastructure Investment : Considerations for Financial Regulators
Prudential regulation of infrastructure investment plays an important role in creating an enabling environment for mobilizing long-term finance from institutional investors, such as insurance companies, and, thus, gives critical support to sustaina...
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World Bank, Washington, DC
2018
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| Online Access: | http://documents.worldbank.org/curated/en/606411522326750586/Credit-Risk-Dynamics-of-Infrastructure-Investment-Considerations-for-Financial-Regulators http://hdl.handle.net/10986/29540 |
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okr-10986-295402021-06-14T10:07:43Z Credit Risk Dynamics of Infrastructure Investment : Considerations for Financial Regulators Jobst, Andreas A. INFRASTRUCTURE INVESTMENT CREDIT RISK FINANCIAL REGULATION INFRASTRUCTURE PROJECT FINANCE INSURANCE REGULATION BANKING REGULATION INSURANCE CAPITAL SOLVENCY REGIME BASIL III Prudential regulation of infrastructure investment plays an important role in creating an enabling environment for mobilizing long-term finance from institutional investors, such as insurance companies, and, thus, gives critical support to sustainable development. Infrastructure projects are asset-intensive and generate predictable and stable cash flows over the long term, with low correlation to other assets; hence they provide a natural match for insurers' liabilities-driven investment strategies. The historical default experience of infrastructure debt suggests a "hump-shaped" credit risk profile, which converges to investment grade quality within a few years after financial close -- supported by a consistently high recovery rate with limited cross-country variation in non-accrual events. However, the resilient credit performance of infrastructure -- also in emerging market and developing economies -- is not reflected in the standardized approaches for credit risk in most regulatory frameworks. Capital charges would decline significantly for a differentiated regulatory treatment of infrastructure debt as a separate asset class. Supplementary analysis suggests that also banks would benefit from greater differentiation, but only over shorter risk horizons, encouraging a more efficient allocation of capital by shifting the supply of long-term funding to insurers. 2018-03-29T17:09:00Z 2018-03-29T17:09:00Z 2018-03-22 Working Paper http://documents.worldbank.org/curated/en/606411522326750586/Credit-Risk-Dynamics-of-Infrastructure-Investment-Considerations-for-Financial-Regulators http://hdl.handle.net/10986/29540 English CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Working Paper |
| repository_type |
Digital Repository |
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Foreign Institution |
| institution |
Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
| language |
English |
| topic |
INFRASTRUCTURE INVESTMENT CREDIT RISK FINANCIAL REGULATION INFRASTRUCTURE PROJECT FINANCE INSURANCE REGULATION BANKING REGULATION INSURANCE CAPITAL SOLVENCY REGIME BASIL III |
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INFRASTRUCTURE INVESTMENT CREDIT RISK FINANCIAL REGULATION INFRASTRUCTURE PROJECT FINANCE INSURANCE REGULATION BANKING REGULATION INSURANCE CAPITAL SOLVENCY REGIME BASIL III Jobst, Andreas A. Credit Risk Dynamics of Infrastructure Investment : Considerations for Financial Regulators |
| description |
Prudential regulation of infrastructure
investment plays an important role in creating an enabling
environment for mobilizing long-term finance from
institutional investors, such as insurance companies, and,
thus, gives critical support to sustainable development.
Infrastructure projects are asset-intensive and generate
predictable and stable cash flows over the long term, with
low correlation to other assets; hence they provide a
natural match for insurers' liabilities-driven
investment strategies. The historical default experience of
infrastructure debt suggests a "hump-shaped"
credit risk profile, which converges to investment grade
quality within a few years after financial close --
supported by a consistently high recovery rate with limited
cross-country variation in non-accrual events. However, the
resilient credit performance of infrastructure -- also in
emerging market and developing economies -- is not reflected
in the standardized approaches for credit risk in most
regulatory frameworks. Capital charges would decline
significantly for a differentiated regulatory treatment of
infrastructure debt as a separate asset class. Supplementary
analysis suggests that also banks would benefit from greater
differentiation, but only over shorter risk horizons,
encouraging a more efficient allocation of capital by
shifting the supply of long-term funding to insurers. |
| format |
Working Paper |
| author |
Jobst, Andreas A. |
| author_facet |
Jobst, Andreas A. |
| author_sort |
Jobst, Andreas A. |
| title |
Credit Risk Dynamics of Infrastructure Investment : Considerations for Financial Regulators |
| title_short |
Credit Risk Dynamics of Infrastructure Investment : Considerations for Financial Regulators |
| title_full |
Credit Risk Dynamics of Infrastructure Investment : Considerations for Financial Regulators |
| title_fullStr |
Credit Risk Dynamics of Infrastructure Investment : Considerations for Financial Regulators |
| title_full_unstemmed |
Credit Risk Dynamics of Infrastructure Investment : Considerations for Financial Regulators |
| title_sort |
credit risk dynamics of infrastructure investment : considerations for financial regulators |
| publisher |
World Bank, Washington, DC |
| publishDate |
2018 |
| url |
http://documents.worldbank.org/curated/en/606411522326750586/Credit-Risk-Dynamics-of-Infrastructure-Investment-Considerations-for-Financial-Regulators http://hdl.handle.net/10986/29540 |
| _version_ |
1764469669612224512 |