Economic and regulatory capital allocation for revolving retail exposures

William I. Nayda and Roberto Perli

No 2003-39, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The latest revision of the Internal Ratings Based approach of the Basel Committee on Banking Supervision's New Capital Accord Proposal for retail portfolios contains a significant innovation relative to previous versions: the recognition that, for revolving credits, future margin income will be available to cover losses before a bank's capital is threatened. We assemble a mini-portfolio of revolving exposures and we compare the capital charges generated by the latest Basel's formula with the capital charges generated by two possible earnings-at-risk internal capital allocation models. We find that in general, Basel's capital ratios are closer to those generated by our models for the groups with lower credit risk. We attribute the discrepancies to the different ways Basel and our models account for future margin income, to Basel assumptions about asset correlations, and to one our models taking macroeconomic conditions explicitly into account.

Keywords: Risk; Bank capital (search for similar items in EconPapers)
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.federalreserve.gov/pubs/feds/2003/200339/200339abs.html (text/html)
http://www.federalreserve.gov/pubs/feds/2003/200339/200339pap.pdf (application/pdf)

Related works:
Journal Article: Economic and regulatory capital allocation for revolving retail exposures (2004)
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: https://EconPapers.repec.org/RePEc:fip:fedgfe:2003-39

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().