scholarly journals Regulatory Estimates for Defaulted Exposures: A Case Study of Spanish Mortgages

Mathematics ◽  
2021 ◽  
Vol 9 (9) ◽  
pp. 997
Author(s):  
Marta Ramos González ◽  
Antonio Partal Ureña ◽  
Pilar Gómez Fernández-Aguado
Keyword(s):  
Capital Requirements ◽  
Risk Profile ◽  
Risk Measurement ◽  
Expected Loss ◽  
Basel Accord ◽  
Loss Given Default ◽  
European Central ◽  
European Banking ◽  
Credit Risk Measurement

The capital requirements derived from the Basel Accord were issued with the purpose of deploying a transnational regulatory framework. Further regulatory developments on risk measurement is included across several documents published both by the European Banking Authority and the European Central Bank. Among others, the referred additional documentation focused on the models’ estimation and calibration for credit risk measurement purposes, especially the Advanced Internal-Ratings Based models, which may be estimated both for non-defaulted and defaulted assets. A concrete proposal of the referred defaulted exposures models, namely the Expected Loss Best Estimate (ELBE) and the Loss Given Default (LGD) in-default, is presented. The proposed methodology is eventually calibrated on the basis of data from the mortgage’s portfolios of the six largest financial institutions in Spain. The outcome allows for a comparison of the risk profile particularities attached to each of the referred portfolios. Eventually, the economic sense of the results is analyzed.

scholarly journals Improvement of operational risk measurement under the Solvency II framework

2015 ◽  
Vol 5 (2) ◽  
pp. 135-141
Author(s):  
Darja Stepchenko ◽  
Gaida Pettere ◽  
Irina Voronova
Keyword(s):  
Operational Risk ◽  
Solvency Ii ◽  
Capital Requirements ◽  
Risk Measurement ◽  
Insurance Company ◽  
Life Insurance Company ◽  
Risk Capital ◽  
Mathematical Methods ◽  
Solvency Capital

Operational risk is one of the core risks of every insurance company in accordance to the solvency capital requirement under the Solvency II regime. The target of the research is to investigate the improvement possibilities of the operational risk measurement under Solvency II regime. The authors have prepared the algorithm of the operational risk measurement under Solvency II framework that helps improve the understanding of the operational risk capital requirements. Moreover, the authors have prepared the case study about a practical usage of the suggested algorithm through the example of one non-life insurance company. The authors use, in order to perform the research, such corresponding methods as theoretical and methodological analysis of scientific literature, analytical, statistical and mathematical methods.

scholarly journals Systemic risk measurement: bucketing global systemically important banks

2021 ◽  
Author(s):  
Marina Brogi ◽  
Valentina Lagasio ◽  
Luca Riccetti
Keyword(s):  
Systemic Risk ◽  
Financial System ◽  
Capital Requirements ◽  
Insurance Premium ◽  
Risk Measurement ◽  
Marginal Contribution ◽  
General Consensus ◽  
Systemically Important Banks

AbstractThe general consensus on the need to enhance the resilience of the financial system has led to the imposition of higher capital requirements for certain institutions, supposedly based on their contribution to systemic risk. Global Systemically Important Banks (G-SIBs) are divided into buckets based on their required additional capital buffers ranging from 1% to 3.5%. We measure the marginal contribution to systemic risk of 26 G-SIBs using the Distressed Insurance Premium methodology proposed by Huang et al. (J Bank Financ 33:2036–2049, 2009) and examine ranking consistency with that using the SRISK of Acharya et al. (Am Econ Rev 102:59–64, 2012). We then compare the bucketing using the two academic approaches and supervisory buckets. Because it leads to capital surcharges, bucketing should be consistent, irrespective of methodology. Instead, discrepancies in the allocation between buckets emerge and this suggests the complementary use of other methodologies.

scholarly journals Valuation of Non-Performing Loans under Discussion

2020 ◽  
Vol 15 (12) ◽  
pp. 25
Author(s):  
Emanuel Bagna
Keyword(s):  
Real Estate ◽  
Financial Market ◽  
Fair Value ◽  
Previous Approach ◽  
European Central ◽  
European Banking ◽  
Null Value ◽  
New Guidelines ◽  
Supervisory Expectations ◽  
Is Value

In March 2018, the ECB published “Addendum to the ECB Guidance to banks on non-performing loans: supervisory expectations for prudential provisioning of non-performing exposures” in which it required non-performing loans originated after 1 April 2018 to be fully written down after 7 years, with unsecured loans to be written offer after only 2 years. In practice, this approach implies the use of a null value: i) after seven years for secured non-performing loans and ii) after two years for unsecured loans, with an accounting provision for an equivalent amount. European Banking Authority (EBA) statistics for 2019 show that provisions for non-performing loans in Europe were 44.9% (Note 1), corresponding to an NPL valuation of 55.1%, which is higher than the implicit value in the prudential provisions recommended by the ECB. The ECB's new guidelines on provision levels and the implicit value of such provisions creates serious doubt about banks' estimated fair values of NPLs, as per what they book in their accounts. This article aims to use the disclosures provided by listed Italian banks in their notes to the accounts from 2009 to 2019 to determine if the fair value for NPLs, as divided between the secured part and the unsecured part, is value relevant and the amount of any discount/premium applied by the financial market compared to the actual fair value that is booked. The results highlight the excessively prudential nature of completely writing off non-performing loans and justify a review of the approach adopted by the European Council and Parliament in August 2019 (and subsequently adopted by the European Central Bank) in which unsecured NPLs should be fully written off after 3 years (compared to 2 years before), NPLs secured by real estate after 9 years (compared to 7 years before) and NPLs secured by non-real estate guarantees after 7 years (confirming the previous approach) for all loans originated after 26 April 2019.

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