Determination of Economic Capital for Steel Sector Financing by Banks

Ajay Pathak

The IUP Journal of Bank Management, 2007, vol. VI, issue 1, 6-17

Abstract: An analysis has been carried out to estimate Economic Capital required against Banks’ financing under steel sector, based on two methods: one, the KMV-Merton Model used to evaluate the probability of default of the individual obligors; and two, Credit Risk+ Model for Portfolio Analysis, and based on these two, a compound model is created for the measurement of credit risk. Banks will be able to use the stated process to determine the economic capital in relation to regulatory capital, and ascertain whether the risk taken in a sector is commensurate with the capital employed thereof or not. It also helps them optimize the demand on economic capital.

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:icf:icfjbm:v:6:y:2007:i:1:p:6-17

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