Topic
Credit risk
About: Credit risk is a research topic. Over the lifetime, 18595 publications have been published within this topic receiving 382866 citations.
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TL;DR: This paper aims to help demystify stress tests, and illustrate their strengths and weaknesses, using an Excel-based exercise with institution-by-institution data.
Abstract: Stress testing is a useful and increasingly popular, yet sometimes misunderstood, method of analyzing the resilience of financial systems to adverse events. This paper aims to help demystify stress tests, and illustrate their strengths and weaknesses. Using an Excel-based exercise with institution-by-institution data, readers are walked through stress testing for credit risk, interest rate and exchange rate risks, liquidity risk and contagion risk, and are guided in the design of stress testing scenarios. The paper also describes the links between stress testing and other analytical tools, such as financial soundness indicators and supervisory early warning systems. Furthermore, it includes surveys of stress testing practices in central banks and the IMF.
109 citations
TL;DR: This paper explored how much of these large movements reflected shifts in (i) global risk aversion (ii) country-specific risks, directly from worsening fundamentals, or indirectly from spillovers originating in other sovereigns.
Abstract: Over the past year, euro area sovereign spreads have exhibited an unprecedented degree of volatility. This paper explores how much of these large movements reflected shifts in (i) global risk aversion (ii) country-specific risks, directly from worsening fundamentals, or indirectly from spillovers originating in other sovereigns. The analysis shows that earlier in the crisis, the surge in global risk aversion was a significant factor influencing sovereign spreads, while recently country-specific factors have started playing a more important role. The perceived source of contagion itself has changed: previously, it could be found among those sovereigns hit hard by the financial crisis, such as Austria, the Netherlands, and Ireland, whereas lately the countries putting pressure on euro area government bonds have been primarily Greece, Portugal, and Spain, as the emphasis has shifted towards short-term refinancing risk and long-term fiscal sustainability. The paper concludes that debt sustainability and appropriate management of sovereign balance sheets are necessary conditions for preventing sovereign risk from feeding back into broader financial stability concerns.
109 citations
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TL;DR: In this paper, the determinants of credit default swap spread changes for a large sample of US non-financial companies over the period between January 2002 and March 2009 were analyzed using variables that the literature has found have an impact on CDS spreads and, in order to account for possible non-linear effects, the theoretical CDS spread predicted by the Merton model.
Abstract: This paper analyzes the determinants of credit default swap spread changes for a large sample of US non-financial companies over the period between January 2002 and March 2009. In our analysis we use variables that the literature has found have an impact on CDS spreads and, in order to account for possible non-linear effects, the theoretical CDS spreads predicted by the Merton model. We show that our set of variables is able to explain more than 50% of CDS spread variations both before and after July 2007, when the current financial turmoil began. We also document that since the onset of the crisis CDS spreads have become much more sensitive to the level of leverage while volatility has lost its importance. Using a principal component analysis we also show that since the beginning of the crisis CDS spread changes have been increasingly driven by a common factor, which cannot be explained by indicators of economic activity, uncertainty, and risk aversion.
109 citations
01 Jan 2011
TL;DR: In this article, the authors analyzed empirically the factors that determine the profitability of Spanish banks for the period of 1999-2009 and found no evidence of either economies or diseconomies of scale or scope in the Spanish banking sector.
Abstract: This paper analyzes empirically the factors that determine the profitability of
Spanish banks for the period of 1999-2009. The results obtained by applying the
system-GMM estimator to a large sample of Spanish banks indicate that higher bank
profitability during these years is associated with a larger percentage of loans in total
assets, a higher proportion of customer deposits, better efficiency, and a lower credit
risk. In addition, higher capital ratios also increase the bank�s return, although this
finding applies only when using return on assets (ROA) as the profitability measure.
We find no evidence of either economies or diseconomies of scale or scope in the
Spanish banking sector. On the other hand, all industry and macroeconomic
determinants, with the exception of interest rate, affect bank profitability in the
anticipated ways. Finally, our study reveals differences in the performance of
commercial and savings banks.
109 citations
TL;DR: A comprehensive experimental comparison study over the effectiveness of four learning algorithms, i.e., BP, ELM, I-ELM, and SVM over a data set consisting of real financial data for corporate credit ratings.
109 citations