scholarly journals Modelling Credit Risk: Evidence for EMV Methodology on Portuguese Mortgage Data

2021 ◽  
Vol 39 (8) ◽  
Author(s):  
Maria Rosa Borges ◽  
Raquel Machado
Keyword(s):  
Financial Crisis ◽  
Credit Risk ◽  
Adverse Selection ◽  
Stress Testing ◽  
Selection Effects ◽  
Risk Models ◽  
Explanatory Variables ◽  
Testing Procedures ◽  
Default Rates ◽  
Recent Financial Crisis

ABSTRACTTraditional credit risk models failed during the recent financial crisis and revealed weaknesses in forecasting and stress testing procedures. One of the reasons for this failure was the fact that they did not include lifecycle and macroeconomic adverse selection effects. In this article, we assess the applicability of the Exogenous-Maturity-Vintage (EMV) models to study the determinants of default rates. We obtain and examine the exogenous, maturity and vintage curves from a dataset of Portuguese mortgage data. We show that the exogenous, maturity and vintage curves follow the expected behavior, and, we identify and discuss a set of explanatory variables.

IMPROVING MANAGING THE CREDIT RISK IN CONDITIONS SLOWING ECONOMIC GROWTH

2015 ◽  
Vol 1 (1) ◽  
pp. 17-29
Author(s):  
Dariusz Prokopowicz
Keyword(s):  
Economic Growth ◽  
Financial Crisis ◽  
Credit Risk ◽  
Economic Downturn ◽  
Financial Systems ◽  
Financial Products ◽  
Increased Risk ◽  
Business Entities ◽  
Recent Financial Crisis ◽  
Lending Institutions

The recent financial crisis in 2008 has made a significant contribution to the growing importance of the analysis of processes of credit risk management and forced to take measures to improve the process. Sources of the financial crisis is now largely associated with the activities of mainly US investment banks that sold derivatives on the basis of income from high-risk mortgages. Increased risk recorded in the banking business, as a rule, also a derivative of the economic downturn in the sectors of bank customers, including non-financial business entities. In such a situation, banks are limited to provide customers with a more risky loan pro-active financial products. Given the global nature of financial markets and the importance of investment banking in the financial systems and the necessary actions to improve the tools for identifying, quantifying and managing banking risks, especially credit and lending institutions to protect themselves from potential sources of risk. The present analysis showed that the anti-crisis measures are mainly focused on the introduction of additional restrictions in the provision of financial products that may not be enough and may even be harmful, helping to reduce the economic growth of individual countries. Measures are also needed to strengthen supervisory agencies in the financial systems, including transnational supervision.

scholarly journals Contagious Adverse Selection

2012 ◽  
Vol 4 (1) ◽  
pp. 1-21 ◽  
Author(s):  
Stephen Morris ◽  
Hyun Song Shin
Keyword(s):  
Financial Crisis ◽  
Adverse Selection ◽  
Upper Bound ◽  
Common Knowledge ◽  
Asset Market ◽  
Small Probability ◽  
Corrosive Effect ◽  
Recent Financial Crisis

We illustrate the corrosive effect of even small amounts of adverse selection in an asset market and show how it can lead to the total breakdown of trade. The problem is the failure of “market confidence,” defined as approximate common knowledge of an upper bound on expected losses. Small probability events can unravel market confidence. We discuss the role of contagious adverse selection and the problem of “toxic assets” in the recent financial crisis. (JEL D82, G01, G12, G14)

scholarly journals CONVENTIONAL AND UNCONVENTIONAL MONETARY POLICY. THE CASE OF ROMANIA

2016 ◽  
Author(s):  
Ioana Plescau
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Credit Risk ◽  
Interest Rates ◽  
Banking System ◽  
Central Banks ◽  
Unconventional Monetary Policy ◽  
National Bank ◽  
Recent Financial Crisis ◽  
The Relationship

The aim of our paper is to analyze the conventional and unconventional monetary policy in Romania, in the context of the recent financial crisis. We study the relationship between interest rates and credit risk, but also the non-standard monetary measures that were adopted by the National Bank of Romania and their impact on the banking system. Our results point to a decrease of interest rates in the years after the crisis, which is in line with the majority of central banks that have reduced monetary rates in order to sustain the economy and the credit activity.

Credit Risk Stress Testing Practices in BRICS: Post-global Financial Crisis Scenario

2017 ◽  
Vol 18 (4) ◽  
pp. 936-954 ◽  
Author(s):  
A. P. Pati
Keyword(s):  
South Africa ◽  
Financial Crisis ◽  
Credit Risk ◽  
Stress Testing ◽  
Global Financial Crisis ◽  
Capital Adequacy ◽  
Data Set ◽  
Testing Practices ◽  
Bank Group ◽  
The Impact

The impact of global financial crisis (GFC) was well pervasive with no exception to Brazil, Russia, India, China and South Africa (BRICS) nations. Banking being the conduit to the market was affected severely in many economies including BRICS, where credit risk emanated from non-performing loans (NPL) was ascribed as the main cause of concern. With the help of The World Bank data set of pre-GFC and post-GFC, this article attempts to look into the credit risk testing practices of BRICS. The Chow’s F-test based on NPL shows no shift in the profitability of banking across all the five economies, whereas a shift in the capital adequacy ratio (CAR) of Russia, India and China in post-crisis years was visible. The BRICS though has different political set-ups follow the international practice of credit risk stress testing for assessing the resilience of their banking sector. Before the crisis, International Monetary Fund (IMF) assessed stress testing for credit risk was in place with BRICS (except India) and currently all the countries are conducting such tests, either independently by their own central banks or with the help of IMF. Bank-specific tests, however, were not found. While India and South Africa are conducting such tests regularly, other three economies are lacking behind. Most of the assessments adopt simulated scenario analysis as well as sensitivity tests for credit risk. While India has been conducting the tests at macro, sector and bank group levels, others are concentrating on macro-level and bank group level. Though variations in selecting variables are found across BRICS, it was found to be very insignificant. The cautions that came along with these tests were mostly found for next 1 to 2 years indicating the test lacuna in predicting bank crisis on a long term.

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