PL EN


Preferencje help
Widoczny [Schowaj] Abstrakt
Liczba wyników
Czasopismo
2016 | nr 6 | 495--527
Tytuł artykułu

Bankrupt UK Cities : PD Model for Credit Risk in Sub-Sovereign Sector

Treść / Zawartość
Warianty tytułu
Języki publikacji
EN
Abstrakty
EN
We develop a PD model (PD - probability of default) for sub-sovereign entities, namely UK municipalities. Our methodology serves as an alternative for banks that use the standardised approach or scorecard-based models for assessing the probability of default for municipalities, local authorities and other sub-sovereign entities. Focusing on credit exposures to municipalities, we address the concerns that sub-sovereign and sovereign entities are nowadays more risky than large corporate or bank entities. Furthermore, discussing the current and forthcoming regulatory frameworks for credit risk models, we point to the existence of contradictory regulations and argue that dispensing with the conservative approach may lead to a build-up of credit risk that cannot be accurately captured. With this in mind, we argue that PD models should remain conservative so that banks can accumulate sufficient capital to cover the crisis-induced default exposures. (original abstract)
Czasopismo
Rocznik
Numer
Strony
495--527
Opis fizyczny
Twórcy
Bibliografia
  • Aaron M., Hogg D. (2005), The use of microdata to assess risks in the non-financial corporate sector, Financial System Review, December, Bank of Canada.
  • Aktug R.E. (2014), A critique of the contingent claims approach to sovereign risk analysis, Emerging Markets Finance and Trade, 50 (sup 1), 294-308.
  • Aldridge H., Born T.B., Tinson A., MacInnes T. (2015), London's Poverty Profile 2015, New Policy Institute.
  • Altman E. (1968), Financial ratios, discriminant analysis and the prediction of corporate bankruptcy, Journal of Finance, 23(4), 589-609.
  • BCBS (2002), Quantitative impact study 3. Technical guidance, Bank for International Settlements.
  • BCBS (2015a), Guidance on credit risk and accounting for expected credit losses, BCBS Paper, d350, Bank for International Settlements.
  • BCBS (2015b), Standards. Revisions to the standardised approach for credit risk, Bank for International Settlements.
  • BBC (2013), Liverpool mayor claims "city could be bankrupt in two years", http://www.bbc.co.uk/news/ uk-england-merseyside-24348712.
  • Beaver S.D., William H., Wolfson M.A. (1992), The role of market value accounting in the regulation of insured depository institutions, in: J.R. Barth, R. Dan Brumbagh Jr. (eds.), The Reform of Federal Deposit Insurance, Harper Collins.
  • Bielecki T.R., Rutkowski M. (2004), Credit Risk: Modeling, Valuation and Hedging, Springer-Verlag.
  • Black F., Cox J.C. (1976), Valuing corporate securities: some effects of bond indenture provisions, Journal of Finance, 31, 351-367.
  • Blancher N., Mitra S., Morsy H., Otani A., Severo T., Valderrama L. (2013), Systemic risk monitoring ("SysMo") toolkit - a user guide, IMF Working Paper, WP/13/168.
  • Brown J. (2016), Hull and Bradford among northern UK cities "struggling most" despite Northern Powerhouse pledge, Yorkshire Post, 29 February.
  • Cardoso V.S., Guimaraes A.L.S., Macedo H.F., Lima J. (2013), Assessing corporate risk: a PD model based on credit ratings, ACRN Journal of Finance and Risk Perspectives, 2(1), 51-58.
  • Carey M., Hrycay M. (2001), Parameterizing credit risk models with rating data, Journal of Banking and Finance, 25(1), 197-270.
  • Chan-Lau J.A., Sy A.N.R. (2006), Distance-to-default in banking: a bridge too far?, IMF Working Paper, 06/215, International Monetary Fund.
  • Crosbie P., Bohn J. (2003), Modeling Default Risk, Moody's KMV Company.
  • De Nicolo G., Tieman A. (2006), Economic integration and financial stability: a European perspective, IMF Working Paper, 05/296, International Monetary Fund.
  • Department for Communities and Local Government (2015), Provisional local government finance settlement: England, 2016 to 2017 and future years, 17 December, Statement to the Parliament, https://www.gov.uk/government/collections/provisional-local-government-finance-settlementengland- 2016-to-2017.
  • EBA (2015), Results from the 2014 Low Default Portfolio (LDP) exercise, European Banking Authority Report.
  • ECB (2005), Financial Stability Review, June, European Central Bank.
  • Falkenstein E.G., Boral A., Carly L.V. (2000), RiskCalc for private companies: Moody's default model, Moody's Investors Service.
  • FCA (2007), BIPRU 4.6. The IRB approach: retail exposures, FCA Handbook, Financial Conduct Authority.
  • Gornall W., Strebulaev I.A. (2015), Financing as a supply chain: the capital structure of banks and borrowers, Rock Center for Corporate Governance at Stanford University Working Paper, 166.
  • Governing Institute (2015), Bankrupt cities, municipalities list and map, http://www.governing.com/govdata/ municipal-cities-counties-bankruptcies-and-defaults.html.
  • Gray D.F., Malone S.W. (2008), Macrofinancial Risk Analysis, John Wiley & Sons.
  • Harada K., Ito T. (2010), Did merger help Japanese mega-banks avoid failure? Analysis of the distance to default of banks, NBER Working Paper, 14518, National Bureau of Economic Research.
  • HM Treasury (2014), Chancellor: "We need a Northern powerhouse", The Rt Hon George Osborne MP Speech, https://www.gov.uk/government/speeches/chancellor-we-need-a-northern-powerhouse.
  • IFRS Foundation (2014), IFRS 9 financial instruments, International Accounting Standards Board
  • Iqbal N., Ali S.A. (2012), Estimation of probability of defaults (PD) for low default portfolios: an actuarial approach, Enterprise Risk Management Symposium Paper, April, http://www. ermsymposium.org/2012/otherpapers/iqbal-ali-paper-03-20-12.pdf.
  • Kealhofer S. (2003a), Quantifying credit risk I: default prediction, Financial Analysts Journal, 59(1), 30-44.
  • Kealhofer S. (2003b), Quantifying credit risk II: debt valuation, Financial Analysts Journal, 59(3), 77-92.
  • Kozak M., Aaron M., Gauthier C. (2005), Using the contingent claims approach to assess credit risk in the Canadian business sector, Financial System Review, December, Bank of Canada.
  • Krainer J., Lopez A. (2003), Forecasting bank supervisory ratings using securities market information, Federal Reserve Bank of San Francisco Paper, February.
  • Lewis J. (2012), A contingent claims approach to measuring insolvency risk: an empirical assessment of the impact of the global financial crisis on Jamaica and its financial sector, Journal of Business, Finance & Economics in Emerging Economies, 7(2), 1-22.
  • Marin J.L.M., Ponce A.T. (2005), Structural models and default probability: application to the Spanish stock market, Investment Management and Financial Innovations, 2, 18-29.
  • Medioli A., Van Praagh A., Tudela M. (2014), U.S. municipal bond defaults and recoveries 1970-2013, Moody's Report, 170048.
  • Merton R.C. (1974), On the pricing of corporate debt: the risk structure of interest rates, Journal of Finance, 49, 1213-1252.
  • Moore S. (2013), 20 cities that may face bankruptcy after Detroit, Newsmax Magazine, 6 August.
  • Nagel S., Purnanandam A. (2015), Bank risk dynamics and distance to default, Becker Friedman Institute for Research in Economics Working Paper, March, University of Chicago.
  • National Audit Office (2014), The impact of funding reductions on local authorities, Local Government Report by the Comptroller and Auditor General, National Audit Office.
  • Prorokowski L. (2011), Recovery from the current banking crisis: insights into costs and effectiveness of response regulations, Qualitative Research in Financial Markets, 3(3), 193-223.
  • Saldias M. (2012), Systemic risk analysis using forward-looking distance-to-default series, Banco de Portugal Working Paper, 16/2012.
  • Standard & Poor's (2013), International local and regional governments default and transition study: 2012 saw defaults spike, 28 March.
  • Tudela M., Medioli A., Van Praagh A. (2013), U.S. municipal bond defaults and recoveries 1970-2013, Moody's Report, 151936.
  • United Cities and Local Governments (2014), BT global city leaders summit, Conference Proceedings, International Festival for Business, http://www.liverpoolvision.co.uk/wp-content/uploads/2014/03/ IFB-2014-Interim-Evaluation-Report.pdf.
  • Vasicek O. (1984), Credit valuation, Moody's KMV White Paper.
  • Westgaard S., Van der Wijst N. (2001), Default probabilities in a corporate bank portfolio: a logistic model approach, European Journal of Operational Research, 135, 338-349.
  • Zhang A. (2009), Statistical methods in credit risk modelling, University of Michigan PhD thesis, https://deepblue.lib.umich.edu/bitstream/handle/2027.42/63707/ajzhang_1.pdf.
  • Zielinski T. (2013), Merton's and KMV models in credit risk management, Studia Ekonomiczne. Zeszyty Naukowe Uniwersytetu Ekonomicznego w Katowicach, 127.
  • ---
Typ dokumentu
Bibliografia
Identyfikatory
Identyfikator YADDA
bwmeta1.element.ekon-element-000171447790

Zgłoszenie zostało wysłane

Zgłoszenie zostało wysłane

Musisz być zalogowany aby pisać komentarze.
JavaScript jest wyłączony w Twojej przeglądarce internetowej. Włącz go, a następnie odśwież stronę, aby móc w pełni z niej korzystać.