Reforming capital requirements in emerging countries
Loading...
Date
relationships.isAdvisorOf
Journal Title
Journal ISSN
Volume Title
Publisher
Universidad Torcuato Di Tella. Escuela de Negocios. Centro de Investigaciones en Finanzas (CIF)
Abstract
This paper then attempts to show how a PCR, in this case from Argentina, can help to set capital and provisioning rules. In order to so this, we employ an econometric credit scoring model on the PCR data - an ordered probit - and we use a recently developed "off the shelf" credit risk portfolio model - CreditRisk+. Section 2 provides a review of the development in credit risk measurement, with emerging countries in mind, to motivate this modeling choice. We then provide a description of the Argentine PCR (section 3) and discuss some of the issues in applying CreditRisk+ to Argentine data (section 4). We then turn our attention to Basel II and show how the PCR and the credit-scoring model can be used to simulate the effect of the Basel II IRB approach as currently proposed. We compare our IRB simulation with our CreditRisk+ estimates of provisioning and capital requirements (section 5). We discuss how the IRB approach might be recalibrated to "fit" the local data (section 6). In section 7 we then discuss the regulatory choices faced by an emerging country regulator given the Basel II proposals and section 8 concludes.