Capital cyclicality, conditional coverage and long-term capital assessment

Alex Ferrer (), José Casals and Sonia Sotoca

Finance Research Letters, 2015, vol. 15, issue C, 246-256

Abstract: We address credit capital cyclicality from a different point of view with the objective of defining alternative measures of long-term capital solvency. We first define the conditional coverage vector, which results from keeping capital constant and let conditional coverage evolve with the economy. We show that its average equals the corresponding unconditional coverage, which motivates us to propose to use its minimum and standard deviation as long-term measures of solvency resilience and stability. We also conduct an empirical analysis. The results show the influence of the Great Recession on the conditional coverage vector and its long-term solvency discrimination power.

Keywords: Capital assessment; Capital cyclicality; Charge-off; Conditional coverage; Credit risk; Unconditional capital (search for similar items in EconPapers)
JEL-codes: C58 G21 G32 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:15:y:2015:i:c:p:246-256

DOI: 10.1016/j.frl.2015.10.009

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