Economics at your fingertips  

Credit risk in European banks: The bright side of the internal ratings based approach

Doriana Cucinelli, Maria Luisa Di Battista, Malvina Marchese and Laura Nieri

Journal of Banking & Finance, 2018, vol. 93, issue C, 213-229

Abstract: This paper investigates the accuracy of internal rating based (IRB) models in measuring credit risk. We contribute to the growing debate on the current prudential regulatory framework by investigating the use of validated IRB models in promoting efficient risk management practices. Our empirical analysis is based on a novel panel data set of 177 Western European banks observed from 2008 to 2015, in the aftermath of the financial and economic crisis. We find that IRB banks were able to curb the increase in credit risk driven by the macroeconomic slowdown better than banks under the standardized approach. This suggests that the introduction of the internal ratings based approach by Basel II has promoted the adoption of stronger risk management practices among banks, as meant by the regulators.

Keywords: Internal ratings based approach; Credit risk; Prudential regulation; Dynamic panels; State dependent endogenous dummy; System GMM (search for similar items in EconPapers)
JEL-codes: G21 C23 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

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:

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2018-11-10
Handle: RePEc:eee:jbfina:v:93:y:2018:i:c:p:213-229