Patrizia Baudino, Raihan Zamil, 30 September 2019

Non-performing assets are a double-edged sword. On the one hand, they often trigger episodes of financial crises. On the other, once a crisis erupts, market participants must have confidence in banks’ reported asset quality metrics in order to regain faith in the financial system. This column shows that accounting standards and prudential frameworks to identify and measure non-performing assets vary widely across countries. This presents a challenge for comparing credit risk across banks and countries, for which the column proposes a range of policy options. 

Simone Moriconi, Giovanni Peri, Dario Pozzoli, 24 February 2019

Firms’ offshoring decisions depend on the size of entry costs in target countries. But the institutional and policy determinants of these costs have received little empirical attention. This column uses data on 2,000 Danish manufacturing firms to explore how costs of entry affect offshoring decisions. Higher levels of labour market rigidity, credit risk, and corruption all lower the probability of offshoring to a given country, while immigrant networks within the firm increase the likelihood of offshoring to their home countries. 

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Training course by the Florence School of Banking and Finance (http://fbf.eui.eu/)

Course Instructor: Jean Dermine (Insead)
Area: Risk Management
Level: Intermediate

This course will focus on the following topics:
- Probability of Default (PD) calibration and validation
- Loss Given Default (LGD) – What do we know about LGDs?
- Discount rate in LGDs.
- Regulatory updates regarding LGDs.
- Value-at-Risk.

This course is targeted at Financial stability and research department of Central Banks, Ph. D. students, private sector economists, EU officials.

More information: http://fbf.eui.eu/credit-market-risk-management/

Matthieu Chavaz, Marc Flandreau, 01 December 2016

Between 1870 and 1914, 68 countries – both sovereign and British colonies – used the London Stock Exchange to issue bonds. This column argues that bond prices and spreads in this period show that the colonies’ semi-sovereignty lowered credit risk at the price of higher illiquidity risk, and further worsened liquidity by attracting investors that rarely traded. Parallels between Eurozone and colonial bonds suggest that the pricing of liquidity and credit in government bond markets is an institutional phenomenon.

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The Asian Development Bank Institute (ADBI) is looking for original unpublished research papers related to, but not limited to, the following topics:

Empirical analysis of credit-scoring methodologies and prediction of delinquency based on available MSME credit data or alternative data (utility, telecommunication payment, large data, etc.)
Empirical analysis of optimum collateral and credit guarantee ratio in Asia
Principles of good credit information infrastructure in Asia (credit risk database, credit information registries, credit bureau, credit-rating agencies, and credit guarantee corporation)
Evaluation of credit infrastructure in selected countries in Asia
Credit reporting and the use of credit-rating data to promote MSME financing in Asia: lessons learned from successful economies
Examination of tools to promote financial access to MSMEs and start-up businesses

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Is Credit Risk modeling dead after the recent financial crisis? Should banks follow pre-define rules for calculating credit-risk related capital requirements (also denominated “standardized approach”) instead of using tailor-made credit risk models (“Advanced Internal Rating-Based approach”)? In order to answer these questions, it is important to have a clear understanding of the benchmark techniques currently in use by the financial industry (in particular, the assumptions over which they are based and their limitations). This course aims to provide a first step on that direction.

This is an introductory course on Credit Risk. As such, it will cover some of the benchmark approaches for estimating the key AIRB parameters (PD, LGD and EAD). It will also discuss the regulatory requirements related to each of them. Some of these approaches will be implemented using the software R.

Michael Pomerleano, Harald Scheule, Andrew Sheng, 09 February 2009

This column explains how the collective use of inappropriate market information and flawed models led to systemic financial problems. It suggests one of the keys to global financial stability is the revision, diversification, and publication of risk models.

Vasso Ioannidou, Steven Ongena, José-Luis Peydró, 17 October 2007

Do low levels of short-term interest encourage risk-taking that can be considered ‘excessive’? Do low interest rates imply higher credit risk in the short-run? In the medium-run? New empirical research suggests that the answers are a resounding ‘yes’, a subtle ‘no’ and a qualifying ‘it depends’.

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CEPR Policy Research