Credit Default and Business Cycles: an empirical investigation of Brazilian retail loans

Arnildo Correa, Jaqueline Marins, Myrian Neves () and Antonio Silva

No 260, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: We use microdata from the Credit Information System (SCR) of the Central Bank of Brazil to study the relationship between credit default and business cycles. In particular, we study the first part of the argument underlying the discussion about procyclicality related to the Basel II Accord: that recessions might increase credit defaults and have adverse impacts on the losses in portfolios of lender institutions. We explore both time series and cross-sectional variation in the data. Our data on the individual level are composed of retail loan transactions in two modalities—Consumer Credit and Vehicle Financing—from 2003 to 2008. Our results support the idea of a negative relationship between business cycles and credit default, but less strong than suggested in previous studies that use corporate data. We also find low and dispersed default correlations, and smaller losses in Value at Risk (VaR) experiments than those found in the literature. These results may be possibly explained by the fact that, in the retail sector, loans are given to a large number of individuals, which may help to diversify risks.

Date: 2011-11
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/wps260.pdf (application/pdf)

Related works:
Journal Article: Credit Default and Business Cycles: An Empirical Investigation of Brazilian Retail Loans (2014)
Working Paper: CREDIT DEFAULT AND BUSINESS CYCLES: ANEMPIRICAL INVESTIGATION OF BRAZILIAN RETAIL LOANS (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bcb:wpaper:260

Access Statistics for this paper

More papers in Working Papers Series from Central Bank of Brazil, Research Department
Bibliographic data for series maintained by Rodrigo Barbone Gonzalez ().