Risk Modeling and Capital: Credit Risk (Loans)

Johannes Wernz

Chapter 4 in Bank Management and Control, 2014, pp 39-68 from Springer

Abstract: Abstract The interest is calculated such that all the non-defaulting clients are also paying for the defaulting ones – this is a kind of insurance-like approach. Statistically in each year a certain fraction of clients will default. If the calibration of the probabilities of default (PD) forecast by the rating systems is lower than the realized default rates the bank has to do additional write-offs. If there are securities like mortgages these write-offs are reduced as the bank gets back some of the money.

Keywords: Gini Coefficient; Adverse Selection; Mortgage Loan; Default Rate; Rating Grade (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/978-3-642-40374-3_4

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