Linking Financial and Macroeconomic Factors to Credit Risk Indicators of Brazilian Banks

Marcos Souto, Benjamin Tabak and Francisco Vazquez

No 189, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: This study constructs a set of credit risk indicators for 39 Brazilian banks, using the Merton framework and balance sheet information on the banks’ total assets and liabilities. Despite the simplifying assumptions, the methodology captures well several stylized facts in the recent history of Brazil. In particular, it identifies deterioration in the credit risk indicators of the banking sector, following the crisis in the early 2000s. The risk indicators were regressed against a number of macro-financial variables at both individual and systemic level, showing that an increase in the system EDF, interest rates, and CDS spreads will lead to a deterioration of the individual expected default probability.

Date: 2009-07
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-fmk, nep-lam, nep-mac and nep-rmg
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Citations: View citations in EconPapers (20)

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