Estimation of Regulatory Credit Risk Models

Carlos Perez Montes ()

Journal of Financial Services Research, 2015, vol. 48, issue 2, 191 pages

Abstract: This article estimates a general credit risk model with both macroeconomic and latent credit factors for Spanish banks during the period 2004–2010. The proposed framework allows to estimate with bank level data both a credit risk model in line with the standard of Basel II and generalized models. I find evidence of persistence in the credit latent factor and of a significant effect of GDP growth and interbank rates on loan default rates. The estimated default correlation is low across specifications, indicating a positive relation between bank concentration and financial stability. The model is also used to calculate the impact on the probabilities of default of stressed economic scenarios. Copyright Springer Science+Business Media New York 2015

Keywords: Credit risk; Default correlation; Stress test; State space model; Bootstrap; MLE; E0; G21 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jfsres:v:48:y:2015:i:2:p:161-191

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DOI: 10.1007/s10693-014-0209-3

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