EconPapers    
Economics at your fingertips  
 

Banks' credit loss forecasts: lessons from supervisory data

Martin Birn, Renzo Corrias, Christian Schmieder and Nikola Tarashev

No 1125, BIS Working Papers from Bank for International Settlements

Abstract: Focusing on credit risk, we compare banks' expected loss (EL) rates, collected confidentially by the Basel Committee on Banking Supervision from 2009 to 2022, and the corresponding actual loss (AL) rates, as reported in vendor data. Consistent with the use of through-the-cycle risk estimates for regulatory purposes, EL rates rarely move in line with AL rates over time, which helps explain a large precautionary element in Basel III capital requirements. We also find that the rank-order of EL rates across banks matches closely that of the AL rates, in line with recent and forthcoming regulatory efforts to improve risk-measurement practices. EL rates are more likely to be excessively optimistic on the heels of higher bank profitability and financial overheating, as captured by the credit-to-GDP gap.

Keywords: expected loss forecasts; regulatory capital; portfolio credit risk (search for similar items in EconPapers)
JEL-codes: E44 G21 G28 G32 G33 P52 (search for similar items in EconPapers)
Date: 2023-09
New Economics Papers: this item is included in nep-ban and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bis.org/publ/work1125.pdf Full PDF document (application/pdf)
https://www.bis.org/publ/work1125.htm (text/html)

Related works:
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:bis:biswps:1125

Access Statistics for this paper

More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Martin Fessler ().

 
Page updated 2025-03-30
Handle: RePEc:bis:biswps:1125