Bank Size, Functional Distance and Loss Given Default Rate of Bank Loans

Forecasting bank loans loss-given-default

With the advent of the new Basel Capital Accord, banking organizations are invited to estimate credit risk capital requirements using an internal ratings based approach. In order to be compliant with this approach, institutions must estimate the expected loss-given-default, the fraction of the credit exposure that is lost if the borrower defaults. This study evaluates the ability of a parametri...

Estimating bank loans loss given default by generalized additive models

Bank Risk Dynamics and Distance to Default

We adapt structural models of default risk to take into account the special nature of bank assets. The usual assumption of log-normally distributed asset values is not appropriate for banks. Bank assets are risky debt claims, which implies that they embed a short put option on the borrowers’ assets, leading to a concave payoff. This has important consequences for banks’ risk dynamics and distan...

Concentration in corporate bank loans

The aim of this paper is to empirically investigate the determinants of creditor concentration in the use of bank loans by firms in a European cross-country framework. We analyze the influence of loan and borrower characteristics but also banking market structure and legal enforcement variables that are expected to influence the financial and strategic decisions relative to bank lending concent...

Loss given default as a function of the default rate

A recently derived function ties a portfolio’s loss given default rate (LGD) to its default rate. This study compares the predictive performance of the LGD function to that of linear regression using simulated data. The data are simulated using a linear model. Even though this confers an advantage to linear regression, the LGD function produces lower mean squared error over a meaningful range o...