By Anthony Saunders

Operating within the banking i used to be grew to become directly to this ebook by way of a colleague and what a immense waste of time interpreting this used to be. the majority of this book's types are outmoded and if Mr. Saunders was once attempting to write a ancient piece he has comprehensive that during spades. not anything during this booklet is correct and it's seen the esteemed Mr. Saunders lent his identify to a really terrible publication that he most likely must have glanced via if no longer learn. Linda Allen may still most likely get a few genuine global event simply because she is losing people's time along with her learn.

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Additional resources for Credit Risk Measurement: New Approaches to Value at Risk and Other Paradigms

Sample text

3 pertain to the sovereign’s risk rating. 17 Option 2 uses the external credit rating of the bank itself to set the risk weight. 3, pertain to the bank’s credit rating. 6 percent capital requirement) regardless of the sovereign’s credit rating. The choice of which option applies is left to national bank regulators and must be uniformly adopted for all banks in the country. 18 Assessment BIS II is a step in the right direction in that it adds risk sensitivity to the regulatory treatment of capital requirements to absorb credit losses.

For example, under the potential modifications of November 2001, the LGD takes on a value of either 40 percent (if the loan is fully secured by receivables), 45 percent (if fully secured by physical, non-real estate collateral), 50 percent (if unsecured but senior), or 75 percent (if subordinated). Risk-weighted assets (RWA) are then computed by multiplying the risk weight (RW) times the exposure at default EAD. Finally, the minimum capital requirement is computed by multiplying the risk-weighted assets times 8 percent; that is, the minimum capital requirement on the individual loan = RW × EAD × 8 percent.

This appears to be inconsistent with the concept underlying the standardized model, which essentially attributes this bank-monitoring function to external rating agencies for the purposes of setting capital requirements. Adoption of this model may well reduce banks’ incentives to invest time and effort in monitoring, thereby reducing the availability of information and further undermining the value of the banking franchise. , commercial lending, consumer lending) whether on or off the balance sheet.

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