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on Risk Management |
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Issue of 2015‒09‒11
ten papers chosen by |
| By: | Luca Erzegovesi |
| Abstract: | The aim of this paper is twofold: (1) describe the new prudential regulatory framework on securitisation approved by the Basel Committee on Banking Supervision in December 2014 which will come into force from January 2018; (2) analyse the impact of the new rules on public guarantees to the benefit of securitised portfolios of SME loans, a policy tool which has grown in importance in Italy in programs fostering SME financing in the presence of a credit crunch. The rationale and principles behind the new framework are considered in the introductory sections. In the central section, the regulatory procedures for calculating minimum capital requirements are examined, with a focus on the two approaches that rely upon Òsupervisory formulasÓ, i.e. SECMIRBA (available to banks with an internal rating system approved by bank supervisors) and SECMSA (available to banks adopting the Standard Approach). In the final section, the impact of the new framework on the effectiveness of public guarantee programs is assessed by means of a simulation exercise where the capital absorption for some representative portfolios is computed and compared under the different regimes, old and new. The evidence obtained indicates that the Basel III framework on securitisation strongly reduces, or even eliminates completely, the capital saving effect of current public guarantee programs on SME portfolios. Therefore, banks and policy makers must design innovative guarantee structures which have a risk mitigation effect and, at the same time, make an efficient use of public resources in order to be ready for the phasing in of the new rules. It is also desirable that the planned review of the Basel III rules recognize guarantees on portfolios of loans to SMEs as eligibility granted to simple, transparent and standardized securitizations |
| Keywords: | securitisation framework, Basilea III |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwpem:2015/12&r=all |
| By: | Schlake, Maximilian |
| Abstract: | Im Dezember 2010 veröffentlichte der Basler Ausschuss für Bankenaufsicht sein drittes Reformpaket, welches die Eigenkapitalausstattung und Liquiditätsvorsorge im Bankensektor verbessern und so künftige Bankenpleiten verhindern soll. Das Basel III-Rahmenwerk stellt damit ein zentrales Element in der globalen Regulierungsarchitektur nach der Finanzkrise dar, dessen spezifische Umsetzung die Wettbewerbsfähigkeit der jeweiligen Bankensektoren maßgeblich beeinflusst. Die EU implementierte die neuen Standards mit dem sogenannten CRD IV-Paket vom 26. Juni 2013, welches aus einer Richtlinie und einer Verordnung besteht. Die vorliegende Arbeit wird dieses Paket in einem ersten Schritt untersuchen und die europäischen Besonderheiten hervorheben. Anschließend werden die Befunde mit der Theorie der komparativen institutionellen Vorteile aus dem Varieties of Capitalism (VoC)-Ansatz erklärt, wobei sich die Analyse auf Deutschland, Frankreich und Großbritannien beschränkt. Die Arbeit zeigt, dass sich die deutschen Forderungen nach Ausnahmen für Sparkassen und Genossenschaften, Vergünstigungen von Mittelstandskrediten und dem Schutz von stillen Einlagen auf die bankbasierte Unternehmensfinanzierung der Volkswirtschaft zurückführen lassen. In Frankreichs state-enhanced capitalism offenbart sich dagegen eine National Champions-Strategie zum Schutze der Großbanken und ihrer Versicherungsbeteiligungen. Der Fall Großbritannien bringt den gewählten Theorieansatz schließlich an seine Grenzen, da er dessen Konzept von relativ konstanten und unzweideutigen nationalen Wirtschaftsinteressen in Frage stellt: Höhere Kapitalanforderungen in Form von Leverage Ratio und Systemrisikopuffer mussten hier gegen die eigene Finanzindustrie durchgesetzt werden. Diese warb zusammen mit der deutschen und französischen Regierung für eine Maximum Harmonisation und definierte das nationale Interesse damit auf eine ganz andere Art. |
| Abstract: | In December 2010 the Basel Committee on Banking Supervision published its third reform package which was designed to improve the equity base and liquidity provision in the banking sector, thus preventing future bank failures. The Basel III framework thereby constitutes an essential new element in the global regulatory architecture whose specific implementation crucially affects the competitiveness of the respective banking sectors. The new standards were implemented by the EU in the form of the so-called CRD IV package on 26th June 2013. In a first step this paper examines the package and highlights the European features. Subsequently, the findings will be explained by the Theory of Comparative Institutional Advantage from the Varieties of Capitalism (VoC) approach limiting the analysis to Germany, France and Great Britain. The paper reveals that the German demands for exemptions clauses and benefits regarding its savings and cooperative banks, SME loans and silent participations result from its bank-based corporate finance. By contrast, in the French state-enhanced capitalism a National Champions strategy for the protection of the major banks and its insurance subsidiaries becomes apparent. In the case of Great Britain the VoC approach finally reaches its limits as its concept of relatively constant and unambiguous national economic interest is questioned: Higher capital requirements in form of the Leverage Ratio and the Systemic Risk Buffer had to be asserted against the financial industry which campaigned for a Maximum Harmonisation with Germany and France, thus defining the national interest in a completely different way. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubipe:242015&r=all |
| By: | Georges Dionne; Amir Saissi Hassani |
| Abstract: | We determine whether there is an endogenous Hidden Markov Regime (HMR) in the operational loss data of banks from 2001 to 2010. A high level regime is marked by very high loss values during the recent financial crisis. There is therefore temporal heterogeneity in the data. If this heterogeneity is not considered in risk management models, capital estimations will be biased. Levels of reserve capital will be overestimated in periods of normal losses, corresponding to the low level of the regime, and underestimated in periods of a high regime. Variation in capital can go up to 30% during this period of analysis when regimes are not considered. |
| Keywords: | Hidden Markov regime, operational risk, 2007-2009 financial crisis, Skew t type 4 distribution, bank’s regulatory capital, Basel regulation |
| JEL: | G21 G24 G28 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:1516&r=all |
| By: | International Monetary Fund. Monetary and Capital Markets Department |
| Abstract: | This paper discusses the results of the Financial System Stability Assessment on the United States made under the Financial Sector Assessment Program. It is found that welcome steps have been taken in strengthening the financial system. The Financial Stability Oversight Council now provides a useful forum for coordination, the regulatory perimeter has expanded, information sharing among agencies has improved, supervisory stress testing is leading changes in risk measurement and management, and new resolution powers have been established. However, new pockets of vulnerabilities have emerged, partly in response to the continuing search for yield. This requires a continuing focus on strengthening the micro and macroprudential framework. |
| Keywords: | United States;Macroprudential Policy;Insurance;Financial sector;Financial system stability assessment;Financial safety nets;Deposit insurance;Capital markets;Asset management;Bank resolution;Banks;market, financial system, markets |
| Date: | 2015–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:15/170&r=all |
| By: | International Monetary Fund. Monetary and Capital Markets Department |
| Abstract: | This Technical Note discusses the findings and recommendations made in the Financial Sector Assessment Program for the United States in the areas of systemic risk oversight and management. Significant steps have been taken by the U.S. authorities to reduce risks in a number of areas, but progress is most advanced in the area of banking sector resilience, and less so in other areas which play a major role in the financial system. Further actions are needed to address data gaps, resolve remaining impediments to data sharing, support coordination and consultation on prudential standards and regulations, enhance risk monitoring frameworks, and provide additional clarity on the nature and scale of identified emerging systemic threats. |
| Keywords: | Mortgages;Liquidity;Housing;Fiscal risk;United States;Risk management;Securities regulations;Financial Sector Assessment Program;Financial risk;Asset management;Capital markets;monetary fund, market, financial stability, markets |
| Date: | 2015–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:15/172&r=all |
| By: | Yoshino, Naoyuki (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute); Charoensivakorn, Phadet (Asian Development Bank Institute); Niraula, Baburam (Asian Development Bank Institute) |
| Abstract: | Small and medium-sized enterprises (SMEs) are the backbone of most Asian economies. The main obstacle to the development of the SME sector is the lack of stable finance. Considering the bank-dominated characteristic of economies in Asia, banks are the main source of financing, and the lack of a comprehensive credit rating database has been a bottleneck for SMEs. This paper examines how a credit rating scheme for SMEs can be developed, when access to other financial and non-financial ratios is not possible, by using data on lending by banks to SMEs. We employ statistical techniques on five variables from a sample of Thai SMEs and classify them into subgroups based on their financial health. By employing these techniques, banks could reduce information asymmetry and consequently set interest rates and lending ceilings for SMEs. This would ease financing to healthy SMEs and reduce the amount of non-performing loans to this important sector. |
| Keywords: | credit risk analysis; SMEs; bank lending; Thailand |
| JEL: | G21 G23 G24 G32 |
| Date: | 2015–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0536&r=all |
| By: | International Monetary Fund. Monetary and Capital Markets Department |
| Abstract: | This Note discusses the framework for banking resolution and crisis prevention and management in Samoa, and provides comments and recommendations for its improvement. As part of the Financial Sector Assessment Program for Samoa, this technical note evaluates the current legal powers and operational capabilities at the disposal of the financial sector authorities for confronting serious banking problems, and for crisis prevention and management. Comments and recommendations are provided, aimed at increasing the authorities’ capacity to address such problems in a way that minimizes damages to the financial system and reduces costs for the tax payer and for the economy as a whole. Key Findings and Recommendations The current regulatory framework to deal with financial institutions (FIs) should be reformed. The Central Bank of Samoa (CBS) has issued “Prudential Statements†containing some prudential rules, ratios and limits applicable to FIs, but there are no general standards for their enforcement, which is done on a purely discretional case-by-case basis. The powers from the Central Bank Act (CBA) are not strong enough to enable the CBS to take enforcement actions. |
| Keywords: | Crisis prevention;Deposit insurance;Banks;Bank legislation;Bank resolution;Liquidity;Financial Sector Assessment Program;Financial institutions;Risk management;Samoa;deposit, insurance |
| Date: | 2015–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:15/229&r=all |
| By: | Daniel Law; Shaun K. Roache |
| Abstract: | Assessing default risks for Chinese firms is hard. Standard measures of risk using market indicators may be unreliable because of implicit guarantees, the large role played by less-informed investors, and other market imperfections. We test this assertion by estimating stand-alone 1-year default probabilities for non-financial firms in China using an equity-based structural model and debt costs. We find evidence that the equity measure of default risk is sensitive to a firm’s balance sheet health, profitability, and ownership; specifically, default probabilities are higher for weaker, less profitable, and state-owned firms. In contrast, measures based on the cost of debt seem largely detached from fundamentals and instead determined by implicit guarantees. We conclude that for individual firms, equity-based measures, while far from perfect, provide a better measure of stand-alone default risks than borrowing costs. |
| Keywords: | Default;Corporate sector;Credit risk;China;Public non-financial corporations;default probabilities, equity, market, Asset Pricing, Financial Forecasting and Simulation, |
| Date: | 2015–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:15/140&r=all |
| By: | International Monetary Fund. Monetary and Capital Markets Department |
| Abstract: | EXECUTIVE SUMMARY The insurance sector in Bosnia and Herzegovina (BiH) has been growing in recent years but remains small. The total assets of the insurance companies stood at KM 1.2 billion, or about 5 percent of the financial sector assets as of end-2013. Insurance penetration is low at about 2.1 percent of GDP, resulting in vast uninsured risks. The sector collected KM 527 million in premiums in 2013, a 4.3 percent increase from a year earlier. The nonlife insurance sector collects over 80 percent of the insurance premium, including about two-thirds from the mandatory Motor Third Party liability insurance (MTPL). About half of insurance sector assets are held in bank deposits. Ten insurance companies, accounting for 40 percent of the nonlife market, have low solvency margins and may require supervisory action in the near future. The sector’s resilience could be understated since the Solvency I capital requirements do not incorporate all the relevant risks. While liquidity is not a major risk given the high share of bank deposits in assets, a few insurers are heavily exposed to real estate and hold large amounts of receivables. Life insurance is relatively new and has low interest rate risk. MTPL insurance remains under pressure as market participants are not always compliant with the statutory tariff. In some cases, competition has led to insufficient premiums for the risks assumed. Market participants are bypassing regulations for tariffs and commissions. Technical provisions depend heavily on the views of appointed actuaries working for the companies while the regulations do not call for external actuarial audits. Actuarial reviews are carried out but of independent reviews of technical provisions are necessary. Insurance regulation has improved in both entities but the level of harmonization between entities and with the EU directives is still insufficient. It is expected that the Insurance Agency of Bosnia and Herzegovina (BiH-IA) will enhance the harmonization of entity-level regulations within BiH as well as with the EU insurance directives. While the main laws regulating insurance activities: the Insurance Law, Contract Law, the Law on Intermediaries and the MTPL law do not have significant disparities across the entities there have been occasional differences in the legal framework as the amendments have been carried out at different times. The existing disparities and their implications on the effectiveness and decisiveness of the supervision are reflected in this assessment. Since the 2006 FSAP, each supervisory agency has shown some progress. The previous FSAP found the Insurance Supervision Agency in the Republika Srpska (RS-ISA) not operational. However, commendable progress has been achieved since then: the staff has been doubled and has a mix of professionals with legal and actuarial backgrounds; operational processes and internal controls, as well as supervisory and inspections manuals are in place. As a result, the RS-ISA is well positioned to supervise the market. The FBIH-ISA took over the function of the old Insurance Supervision agency (ISA). While the FBiH-ISA inherited a number of experienced staff, the legacy problems hindered a fresh turn-around for the new agency. Hence, the progress at the FBiH-ISA has been fairly limited. |
| Keywords: | Bosnia and Herzegovina;Financial Sector Assessment Program;Corporate governance;Insurance;Insurance regulations;Insurance supervision;Risk management;market, share, monetary fund, market structure |
| Date: | 2015–08–03 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:15/215&r=all |
| By: | International Monetary Fund. Middle East and Central Asia Dept. |
| Abstract: | This Selected Issues paper presents an overview of the cross-border expansion of Moroccan banks in sub-Saharan Africa (SSA). It discusses policies to minimize possible negative spillovers and address the main supervisory challenges. It builds on the analysis and main results of a Pan-African Cross-Border Exercise—a joint initiative by the IMF’s African and Monetary and Capital Markets departments, with the collaboration of the Middle East and Central Asia department. It highlights that that Morocco could play an instrumental role by providing technical assistance to other supervisors in the region, and the SSA region may benefit from the Moroccan experience of good practices in many areas and relatively advanced supervisory capacity. |
| Keywords: | Bank supervision;Banking sector;Central bank role;Financial risk;Morocco;Risk management;Selected Issues Papers;Sub-Saharan Africa;banks, bank, banking, subsidiaries, risk |
| Date: | 2015–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:15/106&r=all |