Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

The objective of this master's thesis is to study and assess the impact of the Covid-19 crisis on the stability of the Belgian banking system.
To do so, the method implemented by Reinders et al. (2020) measuring the estimated additional losses in the portfolio of European banks is applied at the Belgian level. This model allows to evaluate the amount of losses of banks in their corporate loan portfolio by determining the changes in the probability of these companies to be in default. To estimate these changes in default probability a Black and Scholes (1973) and Merton (1974) model is used to measure the impact of an asset valuation shock in the value of the equity and the debt of a firm.
The model developed allow us to calculate changes in the probability of default for the 111 publicly traded firms in the sample based on their stock market data responses between March 17, 2020, when the crisis peaked, and June 30, 2021, when data was last available. Once the change in probability of default obtained we were able to compute the potential losses in Belgian banks corporate loans portfolio by multiplying this change of the probability of default to the exposure at default of the banking sector as well as the loss given default.
Our findings point to a few key conclusions. The first is that at the peak of the Covid-19 crisis, losses in banks' corporate loan portfolios were substantial, ranging from 7.45 percent to 37.66 percent of total corporate loan exposures according to various scenarios resulting from the pandemic's impact on both equity volatility and loss given default. The second is that the stability of the Belgian banking sector appears to have been established, as well as the efficacy of monetary and fiscal assistance measures. Indeed, compared to the peak of the crisis, additional predicted losses as of June 30, 2020 have been considerably decreased to represent only a small fraction of total corporate loan exposures.
As a result, this analysis gives an estimate of the banks' potential losses and allows them to be evaluated for solvency. The approach described here may be useful for bank supervisory organizations to assess the impact of the Covid-19 shock for the business sector reflected on banks' balance sheets and take appropriate measures to ensure financial stability while keeping credit available to real-economy actors.

Financial Stability --- Banking system --- Covid-19 --- Merton Model --- Black & Scholes Model --- Sciences économiques & de gestion > Finance

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

This paper examines the association between the default risk of foreign bank subsidiaries and their parents during the global financial crisis, with the purpose of understanding what factors can help insulate affiliates from their parents. The paper finds evidence of a significant positive correlation between parent banks' and foreign subsidiaries' default risk. This correlation is lower for subsidiaries that have higher capital, retail deposit funding, and profitability ratios and that are more independently managed from their parents. Host country regulations also influence the extent to which shocks to the parents affect the subsidiaries' default risk. In particular, the correlation between the default risk of the subsidiary and the parent is lower for subsidiaries operating in countries that impose higher capital, reserve, provisioning, and disclosure requirements and tougher restrictions on bank activities.

Access to Finance --- Bank Subsidiaries --- Banking Crises --- Bankruptcy and Resolution of Financial Distress --- Banks and Banking Reform --- Corporate Law --- Debt Markets --- Default Risk --- Distance to Default --- Finance and Financial Sector Development --- Law and Development --- Merton Model --- Ring-Fencing

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Using bank level measures of competition and co-dependence, the authors show a robust positive relationship between bank competition and systemic stability. Whereas much of the extant literature has focused on the relationship between competition and the absolute level of risk of individual banks, they examine the correlation in the risk taking behavior of banks, hence systemic risk. They find that greater competition encourages banks to take on more diversified risks, making the banking system less fragile to shocks. Examining the impact of the institutional and regulatory environment on systemic stability shows that banking systems are more fragile in countries with weak supervision and private monitoring, with generous deposit insurance and greater government ownership of banks, and public policies that restrict competition. Furthermore, lack of competition has a greater adverse effect on systemic stability in countries with low levels of foreign ownership, weak investor protections, generous safety nets, and where the authorities provide limited guidance for bank asset diversification.

Access to Finance --- Bank competition --- Bank concentration --- Banks & Banking Reform --- Credit risk --- Debt Markets --- Default risk --- Distance to default --- Emerging Markets --- Finance and Financial Sector Development --- Financial Intermediation --- Lerner index --- Merton model --- Private Sector Development --- Systemic risk

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

"Credit risk is today one of the most intensely studied topics in quantitative finance. This book provides an introduction and overview for readers who seek an up-to-date reference to the central problems of the field and to the tools currently used to analyze them. The book is aimed at researchers and students in finance, at quantitative analysts in banks and other financial institutions, and at regulators interested in the modeling aspects of credit risk."--Jacket.

Credit --- Management. --- Adapted process. --- Arbitrage. --- Asset Sales. --- Asset. --- Bankruptcy. --- Barrier option. --- Basis Point. --- Binomial approximation. --- Binomial distribution. --- Bond (finance). --- Bond Yield. --- Bond valuation. --- Calculation. --- Call option. --- Capital structure. --- Comparative advantage. --- Convenience yield. --- Coupon (bond). --- Coupon. --- Credit (finance). --- Credit default swap. --- Credit derivative. --- Credit rating. --- Credit risk. --- Credit spread (options). --- Cumulative Dividend. --- Current liability. --- Debt Issue. --- Debt. --- Discount function. --- Discrete time and continuous time. --- Dividend payout ratio. --- Dividend. --- Equity value. --- Equivalent Martingale Measures. --- Estimation. --- Estimator. --- Exponential distribution. --- Fair value. --- Geometric Brownian motion. --- Government bond. --- High-yield debt. --- Implicit cost. --- Implied volatility. --- Information asymmetry. --- Interest rate swap. --- Interest rate. --- Issuer. --- Jump process. --- Latent variable. --- Least squares. --- Leverage (finance). --- Liability (financial accounting). --- Libor. --- Logistic regression. --- Market liquidity. --- Market value. --- Markov chain. --- Markov model. --- Mathematical finance. --- Merton Model. --- Moment-generating function. --- Money market. --- Option (finance). --- Par Yield Curve. --- Path dependence. --- Payment. --- Plain vanilla. --- Predictable process. --- Present value. --- Pricing. --- Probability of default. --- Probability. --- Put option. --- Random variable. --- Recapitalization. --- Repurchase agreement. --- Risk management. --- Risk premium. --- Risk-neutral measure. --- Semimartingale. --- Short rate. --- State variable. --- Swap (finance). --- Swap Curve. --- Swap rate. --- Swap spread. --- Synthetic CDO. --- Tax advantage. --- Tax shield. --- Tax. --- Trading strategy. --- Tranche. --- Underlying Security. --- Value (economics). --- Variance. --- Vasicek model. --- Yield curve. --- Yield spread. --- Zero-coupon bond.