The capital adequacy framework Basel II aims to promote the adoption of stronger risk management practices by the banking industry. The implementation makes validation of credit risk models more important. Lenders therefore need a validation methodology to convince their supervisors that their credit scoring models are performing well. In this paper we take up the challenge to propose and imple...

In recent years, spectacular defaults, such as Barings, as well as new requirements from the Basel Committee on Banking Supervision (Basel II) have forced banks to start measuring and managing operational risks (OpRisk) risks arising from the failure of people, processes, systems and external events. Contrary to market and credit risk, there are no standard methods for the quantification of ope...

We present a banking model with imperfect competition in which borrowers’ access to credit is improved when banks are able to transfer credit risks. However, the market for credit risk transfer (CRT) works smoothly only if the quality of loans is public information. If the quality of loans is private information, banks have an incentive to grant unprofitable loans in order to transfer them to o...

In this paper, we study credit risk transfer (CRT) in an economy with endogenous financing (by both banks and non-bank institutions). Our analysis suggests that the incentive of banks to transfer credit risk is aligned with the regulatory objective of improving stability, and so the recent development of credit derivative instruments is to be welcomed. Moreover, we find the transfer of credit r...

This paper demonstrates that the use of GARCH-type models for the calculation of minimum capital risk requirements (MCRRs) may lead to the production of inaccurate and therefore inecient capital requirements. We show that this inaccuracy stems from the fact that GARCH models typically overstate the degree of persistence in return volatility. A simple modi®cation to the model is found to improv...

The purpose of the research paper is to examine and compare the risk management practices of Conventional and Islamic banks in Pakistan. A modified questionnaire on six aspects understanding risk and risk management, risk identification, risk assessment and analysis, risk monitoring, risk management practices and credit risk analysis, has been used containing 45 questions of likert scale. A tot...

a r t i c l e i n f o Operational risk is increasingly being recognised as a significant area of risk and regulation, yet there exists relatively little research on it. In this paper we show that operational risk represents a fundamental risk to option hedging and investigate it by proposing a new theoretical model. We derive an exposure indicator for the operational risk of option hedging and ...

Existing literature has focused attention on the impact of Basle I and similar capital requirement regulations on developed countries where such regulations were found to be effective in increasing capital ratios and reducing portfolio credit risk of commercial banks. In the present study, we study the impact of such capital requirement regulations on commercial banks in 11 developing countries...

Risk-based capital adequacy requirements are the main tool employed by government regulators to assure bank stability. This approach allows banks to choose from a number of alternative methods for calculating the required capital. Many systems for measuring risk differ significantly in cost, precision, and in the potential “capital savings”. We develop a statistical model for evaluating risk me...

This article deals with the issue of managing bank credit risk using a cost model. Modeling management was proposed based on neural-cell technologies, which expand possibilities modeling complex objects and processes provide high reliability determination. The purpose is to improve develop methodical support practical recommendations for reducing level value-at-risk (VaR) methodology its subseq...