The issue of credit risk and deferred bank claims is one of the sensitive issues of banking industry, which can be considered as the main cause of bank failures. In recent years, the economic slowdown accompanied by inflation in Iran has led to an increase in deferred bank claims that could put the country's banking system in serious trouble. Accordingly, the current paper presents a prediction...

Using the industrial economics approach to the microeconomics of banking we analyze a large bank under credit risk. Our aim is to study how a risky loan portfolio affects optimal bank behavior in the loan and deposit markets, when credit derivatives to hedge credit risk are available. We examine hedging without and with basis risk. In the absence of basis risk the usual separation result is con...

Letter of Credit is an international payment instrument whereby the issuing bank undertakes to pay the beneficiary, against presentation of certain stipulated documents, according to the conditions of the Letter of Credit. Discounting of LC for the short-term financing of the seller, due to the independent and irrevocable undertaking of the bank to make payment, is prevalent. Beneficiary gets t...

Standard banking theory suggests that there exists an optimal level of credit risk that yields maximum bank profit. We identify the optimal level of risk-weighted assets that maximizes banks’ returns in the full sample of US banks over the period 1996–2011. We find that this optimal level is cyclical for the average bank, being higher than the realized credit risk in relatively stable periods w...

With an international dataset of credit default spreads as a credit risk measure, we propose a novel empirical framework to identify the structure of credit risk network across major financial institutions around the recent 2007-2008 global credit crisis. The findings directly shed light on credit risk transmission in a financial network and help find systemically important financial institutio...

It is very important for bank to control the credit risk of guarantee loan or combinational loan by evaluating the joint default risk of different enterprises. Firstly we apply a combinational copula function to measure the joint default risk of two enterprises with credit rating information; secondly the default intensity model is intended to analyze the default time distribution; thirdly we u...

This paper investigates the factors affecting bank operational risk and bank equity risk for European banks during 1996 to 2005. Pooled-OLS and panel data analysis is applied to 84 financial institutions across 15 European countries using credit risk, interest rate risk, total equity, systematic risk and idiosyncratic risk. Off-balance sheet activities are positively correlated with all the ris...