DefaultRisk.com the web's biggest credit risk modeling resource. | 
|
|
|
|
A Guide to Choosing Absolute Bank Capital Requirements by Mark Carey of the Board of Governors of the Federal Reserve System May 2002 Abstract: Resampling implementation of a stress-scenario approach to estimating portfolio default loss distributions is proposed as the basis for estimates of the appropriate absolute level of economic capital allocations for portfolio credit risk. Estimates are presented for stress scenarios of varying severity. Implications of use of different analysis time horizons are analyzed. Results for a numeraire portfolio are quite sensitive to such variations. Although the analysis is framed in terms of recent proposals to revise regulatory capital requirements for banks, the arguments and results are also relevant for bankers making capital structure decisions. JEL Classification: G11, G28, G10, G20. Keywords: risk management, credit risk, bank regulation, capital requirements. Books Referenced in this Paper: (what is this?)
Download paper (76K PDF) 33 pages It's rare that I impose my views on other people's research, but I wanted to comment that it was difficult for me to classify this paper. It could have been a modeling paper since it puts forth an independent framework for judging risk capital. It could have been a stress testing paper since it puts structure around the estimation of a portfolio worst case scenario. I like it because it is a complementary adjunct to the prevailing "bottom-up" CreditVaR portfolio models and it addresses the important (often glibly set) target level of an institution's desirable equity level. --Gupton
 |   
|
Please contact me with problems or suggestions. |
