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Please use this identifier to cite or link to this item: http://hdl.handle.net/2108/201

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contributor.authorJacobson, Tor-
contributor.authorLinde, Jesper-
contributor.authorRoszbach, Kasper-
description.abstractThe new Basel II regulation contains a number of new regulatory features. Most importantly, internal ratings will be given a central role in the evaluation of bank loans’ riskiness. Another novelty is that retail credit and SME loans will receive a special treatment in recognition of the fact that the riskiness of such exposure derives to a greater extent from idiosyncratic risk and much less from common factor risk. Much of the work done on the di¤erences between the risk properties of retail,SME and corporate credit has been based on parameterized model of credit risk. In this paper we present new quantitative evidence on the implied credit loss distributions for two Swedish banks using a non-parametric Monte Carlo re-sampling method following Carey [1998]. Our results are based on a panel data set containing both loan and internal rating data from the banks’ complete business loan portfolios over the period 1997-2000. We compute the credit loss distributions that each rating system implies and compare the required economic capital implied by these loss distributions with the regulatory capital under Basel II. By exploiting the fact that a subset of all businesses in the sample is rated by both banks, we can generate loss distributions for SME, retail and corporate credit portfolios with a constant risk profile. Our findings suggest that a special treatment for retail credit and SME loans may not be justified. We also investigate if any alternative definition of SME’s and retail credit would warrant different risk weight functions for these types of exposure. Our results indicate that it may be difficult to find a simple risk weight function that can account for the differences in portfolio risk properties between banks and asset types.en
format.extent230434 bytes-
relation.ispartofseriesQuaderni CEIS; 199-
subjectinternal ratingsen
subjectcredit risken
subjectBasel IIen
subjectretail crediten
subjectrisk weightsen
subject.classificationSECS-P/11; Economia degli intermediari finanziarien
titleCredit risk versus capital requirements under Basel II: are SME loans and retail credit really different?en
subject.jelC14; Semiparametric and nonparametric methodsen
subject.jelC15; Statistical simulation methods, monte carlo methodsen
subject.jelG21; Banks, other depository institutions, mortgagesen
subject.jelG28; Government policy and regulationen
subject.jelG33; Bankruptcy, liquidationen
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