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An assessment of Basel II procyclicality in mortgage portfolios

Jesús Saurina () and Carlos Trucharte ()

No 712, Working Papers from Banco de España

Abstract: In this paper we develop a probability of default (PD) model for mortgage loans, taking advantage of the Spanish Credit Register, a comprehensive database on loan characteristics and credit quality. From that model, we calculate different types of PDs: point in time, PIT, through the cycle, TTC, average across the cycle and acyclical. Then, we compare capital requirements coming from the different Basel II approaches. We show that minimum regulatory capital under Basel II can be very sensitive to the risk measurement methodology employed. Thus, the procyclicality of regulatory capital requirements under Basel II is an open question, depending on the way internal rating systems are implemented and their output is utilised. We focus on the mortgage portfolio since it is one of the most under researched areas regarding the impact of Basel II and because it is one of the most important banks’ portfolios.

Keywords: procyclicality; basel ii; rating systems; mortgages (search for similar items in EconPapers)
JEL-codes: E32 G18 G21 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2007-05
New Economics Papers: this item is included in nep-ban, nep-fmk, nep-mac, nep-reg, nep-rmg and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... o/07/Fic/dt0712e.pdf First version, May 2007 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0712

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