Dimensions of Credit Risk and Their Relationship to Economic Capital Requirements

DefaultRisk.com the web's biggest credit risk modeling resource.

Submit Your Paper

Post Your Résumé

For Recruiters

Today's Featured Book

A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation
by Richard Bookstaber, John Wiley & Sons, April 17, 2007, Hardcover, 288 pages

Training Discounted for DefaultRisk.com visitors only:

The Mathematics of Credit Derivatives: The Essential Credit Modelling and Pricing Companion
by Philipp J. Schönbucher,
WBS Training, August 2003, DVD / Interactive CD-ROM

Sponsor:
Shop at Amazon.com and support DefaultRisk.com

Dimensions of Credit Risk and Their Relationship to Economic Capital Requirements

by Mark Carey of the Board of Governors of the Federal Reserve System

March 15, 2000

Abstract: Now in prospect is a major revision of international bank capital regulations that would embody recent advances in credit risk measurement and management. Previous regulations have been simpler in structure, with a primary goal of getting capital requirements right on average, and thus have largely ignored the difference between average and marginal. This paper presents evidence that explicit treatment in new regulations of several important dimensions of credit risk is necessary to limit banks' incentives to engage in capital arbitrage activities. Such activities, if unchecked, may lead to an increase in bank failure rates over time.

JEL Classification: G11, G28, G10, G20.

Keywords: risk management, credit risk, bank regulation, capital requirements.

Books Referenced in this Paper: (what is this?)