Credit Risk Management: Basic Concepts: Financial Risk Components, Rating Analysis, Models, Economic and Regulatory Capital

by Tony Van Gestel, Bart Baesens

Overview

Credit Risk Management: Basic Concepts is the first book of a series of three with the objective of providing an overview of all aspects, steps, and issues that should be considered when undertaking credit risk management, including the Basel II Capital Accord, which all major banks must comply with in 2008. The introduction of the recently suggested Basel II Capital Accord has raised many issues and concerns about how to appropriately manage credit risk. Managing credit risk is one of the next big challenges facing financial institutions. The importance and relevance of efficiently managing credit risk is evident from the huge investments that many financial institutions are making in this area, the booming credit industry in emerging economies (e.g. Brazil, China, India, ...), the many events (courses, seminars, workshops, ...) that are being organised on this topic, and the emergence of new academic journals and magazines in the field (e.g. Journal of Credit Risk, Journal of Risk Model Validation, Journal of Risk Management in Financial Institutions, ...). Basic Concepts provides the introduction to the concepts, techniques, and practical examples to guide both young and experienced practitioners and academics in the fascinating, but complex world of risk modelling. Financial risk management, an area of increasing importance with the recent Basel II developments, is discussed in terms of practical business impact and the increasing profitability competition, laying the foundation for books II and III.

Product Details

ISBN-13:	9780191609305
Publisher:	OUP Oxford
Publication date:	10/23/2008
Sold by:	Barnes & Noble
Format:	eBook
File size:	13 MB
Note:	This product may take a few minutes to download.

Table of Contents

Acknowledgements ix

Introduction xi

Chapter by chapter overview xiii

1 Bank risk management 1

1.1 Introduction 1

1.2 Banking history 2

1.3 Role of banks 9

1.4 Balance sheet 17

1.5 Sources of risk 23

1.6 Risk management 38

1.7 Regulation 52

1.8 Financial products 59

2 Credit scoring 93

2.1 Introduction 93

2.2 Scoring at different customer stages 95

2.3 Score types 105

2.4 Credit bureaus 109

2.5 Overrides 111

2.6 Business objectives 112

2.7 Limitations 113

3 Credit ratings 115

3.1 Introduction 115

3.2 Rating and scoring systems 117

3.3 Rating terminology 118

3.4 A taxonomy of credit ratings 121

3.5 Rating system architecture 143

3.6 Rating philosophy 145

3.7 External rating agencies 148

3.8 Rating system at banks 157

3.9 Application and use of ratings 162

3.10 Limitations 165

4 Risk modelling and measurement 168

4.1 Introduction 168

4.2 System life cycle 170

4.3 Overview of rating systems and models 174

4.4 Data definition and collection 201

4.5 Development 251

4.6 Implementation 264

4.7 Application and follow-up 265

4.8 Validation, quality control and backtesting 266

5 Portfolio models for credit risk 273

5.1 Introduction 273

5.2 Loss distribution 274

5.3 Measures of portfolio risk 278

5.4 Concentration and correlation 285

5.5 Portfolio model formulations 292

5.6 Overview of industry models 306

5.7 Basel II portfolio model 312

5.8 Implementation and application 325

5.9 Economic capital and capital allocation 327

6 Basel II 344

6.1 Introduction 344

6.2 Bank capital 350

6.3 Pillar 1 (minimum capital requirements) 354

6.4 Pillar 2 (supervisory review process) 418

6.5 Pillar 3 (marketdiscipline) 431

6.6 Information technology aspects 441

6.7 Market impact 452

6.8 Future evolution 479

References 483

Index 519