Estimating economic capital allocations for market and credit risk

2004 ◽  
Vol 6 (4) ◽  
pp. 11-29 ◽  
Author(s):  
Paul Kupiec
Keyword(s):  
Credit Risk ◽  
Economic Capital

Does adding up of economic capital for market- and credit risk amount to conservative risk assessment?

2010 ◽  
Vol 34 (4) ◽  
pp. 703-712 ◽  
Author(s):  
Thomas Breuer ◽  
Martin Jandačka ◽  
Klaus Rheinberger ◽  
Martin Summer
Keyword(s):  
Risk Assessment ◽  
Credit Risk ◽  
Economic Capital

scholarly journals Economic capital for credit risk in the trading book

2011 ◽  
Vol 14 (2) ◽  
pp. 138-154
Author(s):  
Wynand Smit ◽  
Gary Van Vuuren ◽  
Paul Styger
Keyword(s):  
Financial Crisis ◽  
Credit Risk ◽  
Capital Requirements ◽  
Basel Ii ◽  
Economic Capital ◽  
Risk Capital ◽  
Loss Data

The Basel II accord sets out detailed formulations (in its Internal Ratings Based approaches) for determining credit risk capital in the banking book, but until recently, credit risk in the trading book was largely ignored. The financial crisis in 2007/08 exposed this oversight: woefully inadequate trading book capital led to considerable losses which resulted in, inter alia, the imposition of severe capital requirements on credit riskprone securities in the trading book.  Using empirical loss data, this article investigates whether these requirements are appropriate for the trading book and proposes a possible alternative which banks may use to determine economic capital.

scholarly journals Economic Capital Allocation for Corporate Borrowers Credit Risk Coverage

2021 ◽  
Vol 14 ◽  
pp. 20-37
Author(s):  
Irina V. Berezinets ◽  
◽  
Anastasiya S. Loginova ◽  
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Commercial Bank ◽  
Kernel Regression ◽  
Capital Allocation ◽  
Economic Capital ◽  
Credit Risk Management ◽  
Theoretical Methods ◽  
Starting Point ◽  
Risk Coverage

Both the estimation of economic capital for bank's credit risk coverage, and the allocation of economic capital by sources in order to determine the contribution of individual elements to total credit risk play an important role in the area of risk management of a bank. The estimation of a bank's economic capital for credit risk coverage serves as a starting point in the management of a bank's credit risk, while the allocation of economic capital to cover credit risk among individual elements allows to answer the question of how individual elements contribute to the total credit risk of a bank, which makes it possible to take certain decisions on credit risk management based on the obtained results of allocation. Nowadays, there are various theoretical methods and approaches to solve this nontrivial issue. The authors of the article attempted to implement them in practice, to estimate economic capital for credit risk coverage of a commercial bank and to allocate it among elements. This problem was solved applying the Euler allocation method and kernel regression.

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