Procyclicality and Value at Risk

The link between default and recovery rates: effects on the procyclicality of regulatory capital ratios - BIS Working Papers No 113 - July 2002

This paper analyses the impact of various assumptions about the association between aggregate default probabilities and the loss given default on bank loans and corporate bonds, and seeks to empirically explain this critical relationship. Moreover, it simulates the effects of this relationship on the procyclicality of mandatory capital requirements like those proposed in 2001 by the Basel Commi...

Procyclicality and structural trends in investment allocation by insurance companies and pension funds: A Discussion Paper by the Bank of England and the Procyclicality Working Group

Any views expressed in this paper are those of the authors and the Procyclicality Working Group and do not necessarily represent the views of the Bank of England 2 Foreword 1. In early 2013, the Bank established the Procyclicality Working Group (the membership of which is set out overleaf) to examine the question of whether, and if so why, insurance companies and pension funds invest procyclica...

Incorporating Systemic Influences Into Risk Measurements: A Survey of the Literature

Procyclicality has emerged as a potential drawback to adoption of risk-sensitive bank capital requirements. Systematic risk factors may result in increases (decreases) in bank capital requirements when the economy is depressed (overheated), thereby decreasing (increasing) bank lending capacity and exacerbating business cycle fluctuations. Procyclicality may result from systematic risk emanating...

Appendix to “ Does Fair Value Accounting Exacerbate the Procyclicality of Bank Lending ? ”

Imperfect Financial Markets and the Cyclicality of Social Spending

I develop a novel link between frictions in international financial markets and fiscal procyclicality. Complementing existing evidence, A decomposition of government expenditure into social spending and public good spending reveals that the cyclical correlation of social spending exhibits the biggest differences across countries. I build a small open economy model with income inequality, endoge...

Forward-looking estimation of default probabilities with Italian data

The solution adopted in Basel II to deal with procyclicality of capital requirements implies a reduction in risk-sensitivity that contradicts the original spirit of the document. To preserve risksensitivity and to dampen procyclicality at the same time, Pederzoli and Torricelli (2005) set up a model based on a business cycle forecast in the estimation of the default probability and provide an a...