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Credit risk remains one of the major risks faced by most financial and credit institutions. It is deeply connected to the real economy due to the systemic nature of some banks, but also because well-managed lending facilities are key for wealth creation and technological innovation. This book is a collection of innovative papers in the field of credit risk management. Besides the probability of default (PD), the major driver of credit risk is the loss given default (LGD). In spite of its central importance, LGD modeling remains largely unexplored in the academic literature. This book proposes three contributions in the field. Ye & Bellotti exploit a large private dataset featuring non-performing loans to design a beta mixture model. Their model can be used to improve recovery rate forecasts and, therefore, to enhance capital requirement mechanisms. François uses instead the price of defaultable instruments to infer the determinants of market-implied recovery rates and finds that macroeconomic and long-term issuer specific factors are the main determinants of market-implied LGDs. Cheng & Cirillo address the problem of modeling the dependency between PD and LGD using an original, urn-based statistical model. Fadina & Schmidt propose an improvement of intensity-based default models by accounting for ambiguity around both the intensity process and the recovery rate. Another topic deserving more attention is trade credit, which consists of the supplier providing credit facilities to his customers. Whereas this is likely to stimulate exchanges in general, it also magnifies credit risk. This is a difficult problem that remains largely unexplored. Kanapickiene & Spicas propose a simple but yet practical model to assess trade credit risk associated with SMEs and microenterprises operating in Lithuania. Another topical area in credit risk is counterparty risk and all other adjustments (such as liquidity and capital adjustments), known as XVA. Chataignier & Crépey propose a genetic algorithm to compress CVA and to obtain affordable incremental figures. Anagnostou & Kandhai introduce a hidden Markov model to simulate exchange rate scenarios for counterparty risk. Eventually, Boursicot et al. analyzes CoCo bonds, and find that they reduce the total cost of debt, which is positive for shareholders. In a nutshell, all the featured papers contribute to shedding light on various aspects of credit risk management that have, so far, largely remained unexplored.

recovery rates --- beta regression --- credit risk --- contingent convertible debt --- financial modelling --- risk management --- financial crisis --- recovery rate --- loss given default --- model ambiguity --- default time --- no-arbitrage --- reduced-form HJM models --- recovery process --- Counterparty Credit Risk --- Hidden Markov Model --- Risk Factor Evolution --- Backtesting --- FX rate --- Geometric Brownian Motion --- trade credit --- small and micro-enterprises --- financial non-financial variables --- risk assessment --- logistic regression --- probability of default --- wrong-way risk --- dependence --- urn model --- counterparty risk --- credit valuation adjustment (CVA) --- XVA (X-valuation adjustments) compression --- genetic algorithm --- n/a

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This paper presents an assessment of Observance of the Basel Core Principles for Effective Banking Supervision (BCP) in New Zealand. The supervisory approach of the Reserve Bank of New Zealand (RBNZ) reflects the characteristics of the local banking industry and the authorities’ goal to limit moral hazard by relying on market discipline and not offering deposit insurance. Banks offer traditional products in a highly concentrated market. Since the most recent Financial Sector Assessment Program, the RBNZ has increased attention to strengthening regulatory discipline. The current approach to supervision is limited by the heavy weight the RBNZ places on market discipline compared with regulatory discipline. Better compliance with the BCP and enhanced effectiveness of the RBNZ three-pillar approach are recommended.

Financial institutions. --- Financial intermediaries --- Lending institutions --- Associations, institutions, etc. --- Banks and Banking --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Financial Institutions and Services: Government Policy and Regulation --- Banking --- Financial services law & regulation --- Market risk --- Credit risk --- Capital adequacy requirements --- Operational risk --- Financial regulation and supervision --- Bank supervision --- Liquidity risk --- Banks and banking --- Financial risk management --- Asset requirements --- State supervision --- New Zealand

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This paper focuses on the IMF report on detailed assessment of observance of Basel Core Principles (BCP) for effective banking supervision in Canada. The Canadian banking supervisor (OSFI) adopts a close and cooperative approach that supports the close network of federal authorities in identifying and seeking to mitigate prudential risks to the federal system. As a world-leading regulator, OSFI could be expected to issue a comprehensive suite of risk management standards to be available to all banks, even if at a relatively high level or based largely on Basel Committee for Banking Supervision guidance.

Economic development. --- International finance. --- International Monetary Fund. --- World Bank. --- Business & Economics --- Economic Theory --- Economic development --- International finance --- International monetary system --- International money --- Development, Economic --- Economic growth --- Growth, Economic --- Finance --- International economic relations --- Economic policy --- Economics --- Statics and dynamics (Social sciences) --- Development economics --- Resource curse --- Banks and Banking --- Macroeconomics --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Labor Economics: General --- Banking --- Financial services law & regulation --- Labour --- income economics --- Operational risk --- Credit risk --- Market risk --- Foreign banks --- Financial regulation and supervision --- Financial institutions --- Labor --- Banks and banking --- Financial risk management --- Banks and banking, Foreign --- Labor economics --- Canada --- Income economics

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This paper discusses key findings of the Detailed Assessment of Compliance on the Basel Core Principles for Effective Banking Supervision on Singapore. The assessment of the Monetary Authority of Singapore (MAS) represents a very high level of compliance with the Basel Core Principles for Effective Banking Supervision and demonstrates a strong commitment by MAS to their implementation. MAS is well aware of the risks posed by a financial system that is significantly larger than the economy of Singapore. MAS has also set a high standard for approving foreign entrants, applying the same prudential framework to foreign branches as to its own locally incorporated banks.

Banks and banking -- Singapore. --- Finance -- Singapore. --- Monetary policy -- Singapore. --- Finance --- Business & Economics --- Banking --- Banks and banking --- Agricultural banks --- Banking industry --- Commercial banks --- Depository institutions --- Financial institutions --- Money --- Banks and Banking --- Finance: General --- Money and Monetary Policy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Financial Institutions and Services: Government Policy and Regulation --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Financial services law & regulation --- Monetary economics --- Market risk --- Credit risk --- Stress testing --- Liquidity risk --- Financial regulation and supervision --- Credit --- Operational risk --- Financial risk management --- Singapore

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This paper elaborates key findings of the Detailed Assessment of Observance of Basel Core Principles for Effective Banking Supervision by Italy. The core supervisory process at the Banca d’Italia (BI) is strong, and it has a well-defined and integrated supervisory approach. BI is well regarded both in terms of independence, professional qualification, and integrity. The various components of its supervision are integrated in the Supervisory Review and Evaluation Process. The authorities have made progress in addressing the recommendations of the 2006 Financial Sector Assessment Program, although some issues remain. The supervisory coverage of the Bank of Italy is comprehensive, and the follow-up process is intensive.

Banks and banking -- Italy. --- International economic relations. --- International Monetary Fund. --- Finance --- Business & Economics --- Banking --- Banks and banking --- Financial institutions --- Banks and Banking --- Public Finance --- Finance: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Taxation, Subsidies, and Revenue: General --- General Financial Markets: Government Policy and Regulation --- Financial services law & regulation --- Public finance & taxation --- Operational risk --- Internal controls --- Market risk --- Credit risk --- Financial regulation and supervision --- Revenue administration --- Liquidity risk --- Financial risk management --- Revenue --- State supervision --- Financial services industry --- Italy