Index
The Banking Sector Under Financial Stability
ISBN: 978-1-78769-682-2, eISBN: 978-1-78769-681-5
Publication date: 4 December 2018
This content is currently only available as a PDF
Citation
Ramlall, I. (2018), "Index", The Banking Sector Under Financial Stability (The Theory and Practice of Financial Stability, Vol. 2), Emerald Publishing Limited, Leeds, pp. 223-231. https://doi.org/10.1108/978-1-78769-681-520181010
Publisher
:Emerald Publishing Limited
Copyright © 2019 Emerald Publishing Limited
INDEX
Acharya, V., 92
Actuarial models of credit risk, 51–52
Additional Tier 1 Capital, 135
Adopt time-varying capital, 182
Aggregate leverage of big banks, 2
ALCO. See Asset/Liability Committee (ALCO)
Allen, F., 25
Allen, M., 115
ALM. See Asset liability management (ALM)
Altman, E. I., 41, 42
Altman’s Z-score, 41
Artzner, P., 51
Assess banking sector vulnerability, 93–95
Asset-backed commercial paper financing, 23
Asset-based lending, 30
Asset/Liability Committee (ALCO), 106
Asset liability management (ALM), 61, 106–113
Asset liability mismatch, 65
Asset prices, 120–122
Asset quality ratio, limitations of, 87–88
Audits, 11
Automated rating approach, 206
Balance sheet
analysis of banks, 107
assessment, 114–116
repair, 113
shrinkage, 182–183
strategies for interest rate risk management, 78
Bank
activities, 11
based financial system, 4, 11
business model and financial stability, 20
investment banks, 21–22
non-interest income, 21
sources of banks’ income, 20–21
dealing with failing, 187
financial, operational and environmental risks impacting on, 9–10
financial stability risk assessment in, 29
funding structure of, 14–15
higher capital requirements on, 183–185
income, sources of, 20–21
internal and external sources of risks to, 26–27
liquidity creation, 16
market concentration and risk, 22
ratios, 87
regulation of, 129–130
risk management, 24–26
safety nets for, 181
systematic approach to financial stability risk assessment in, 24
Banking business inherently risky, 2–3
Banking sector, 3–5
asset quality, 87
crisis, 120–122
measures to Bolster financial stability in, 13–23
risk assessment, 10–11
risk maps for
banking stability map, 102–103
financial stability risk map, 101–102
Banking soundness index, 103
Basel Committee on Banking Supervision (2015), 2
Basel I, 1988 basel capital accord, 130
Basel II, 14, 130–131
Basel III, 14, 16
bail-in bonds under, 142
for banks, 140–142
capital conservation buffer, 135
components of, 133–134
countercylical capital buffer, 135–136
important financial institution surcharge under, 139
regulation of banks, 129–130
risk-weighting of assets under, 139–140
Basel III Monitoring Report 2015, 2
Beck, T., 22
Bernanke, B., 120
Better bank business models, 15
Binary variables, 4
Black, F., 48
Black-Scholes formula, for volatility, 6
Blundell-Wignall. A., 92
Board of directors, 11
Bologna, P., 19
Bolster financial stability, in banking sector
bank market concentration and risk, 22
bank’s business model and financial stability, 20
investment banks, 21–22
non-interest income, 21
sources of banks’ income, 20–21
capital and non-capital measures, 13–14
credit risk and performance, 19–20
funding structure of banks, 14–15
liquidity measurement, 15–19
local versus global banks, 22–23
off-balance sheet activities, 23
structure of assets, 22
systemic risk buffer, 23
Borio, C., 154
Boyd, J., 22
Bratanovic, S. B., 9, 26, 96, 106, 111, 129, 130
Broader macroeconomic states, 119–120
Broad money, defined, 124
Brunnermeier, M., 93
Bunn, P., 46
Cajueiro, D. O., 22
Calmés, C., 15
Calomiris, C., 120
CAMELS framework, 96–101
Capital adequacy ratio (CAR), 148
Capital analysis of banks
capital ratios
types of bank, 88–92
sound bank capital for regulation, 92–93
Capital conservation buffer, 135
Capital measures, 13–14
Capital Requirements Directive (CRD), 209–210
Capital Requirements Regulation (CRR), 209–210
Caprio, G., 120
CAR. See Capital adequacy ratio (CAR)
Carey, A., 40, 95
Carling, K., 120
Cash debt coverage ratio, 15
Choi, H., 175
Claessens, S., 176
Collaterals, 32
Common equity Tier 1 capital, 89
Conditional migration probabilities, 44
Contagion models, 161
Contingent capital, 182
Continuous variables, 4
Countercylical capital buffer, 135–136
Country risk, 86–87
Covered bonds, 35
CRD. See Capital Requirements Directive (CRD)
Credit channel of monetary policy, 127–128
Credit risk, 210–211
components of exposure at default, 55–56
components of LGD, 56–58
concept of expected and unexpected losses, 52–55
exposure on balance sheets, 30–31
management, 37–38
measurement, 38–39
metrics, 34–37, 42–44
mitigation tools, 32–34
modelling
approaches, 39–40
data considerations, 205–206
models
actuarial models of, 51–52
of financial distress, 41–42
macroeconomic models, 44–47
reduced form models, 51
structural models, 47–51
nature of, 31
off-balance sheet, 31
and performance, 19–20
solutions to impaired loans, 38
sources of, 31–32
transfer, 34
Crisis management, information sharing in, 189–201
Crockett, A., 170
Cross-sectional dimension of systemic risk, 160
CRR. See Capital Requirements Regulation (CRR)
Cunningham, A., 46
Currency risk, 84–85
Data considerations, 205–206
Debt maturity adjustments, 183
Debt service coverage ratio, 37
Debt-to-equity ratio, 36
Default generating process (DGP), 206
Deferred tax assets, 142
Delbaen, F., 51
Dell’Ariccia, G., 4
Deloitte., 141
Demirgüç-Kunt, A., 22, 93
De Nicoló, G., 22
Deposit insurance, 182
Detragiache, E., 4
de Vries, C., 161
DGP. See Default generating process (DGP)
Diamond, D. W., 81
Dodd-Frank Act (2010), 182
Domestic assets, 124
Douglas, G., 25
Downside risk, 6
Drehmann, M., 46, 154
Duration
application to bank, 74–76
benefits of, 67–73
concept, 67
drawback of, 73
effective, 73–74
modified, 73
of portfolio, 76–77
of security, 76
Dwyer, G. P., 4
EAD. See Exposure at default (EAD)
Early-warning models, 160
Earnings perspective, 64
Economic index, 45
dependent variable, 44
Economic value perspective, 64–65
Effective risk management, 8–9
ELs. See Expected losses (ELs)
Emerging market scoring model, 42
Environmental risk, 9, 10
Equity risk, 86
ESRB. See European Systemic Risk Board (ESRB)
European Systemic Risk Board (ESRB), 150
Ex-ante regulation, 29
Exchange rate channel of monetary policy, 125
Expectations channel of monetary policy, 126–127
Expected losses (ELs), 209
Ex-post regulation, 29
Exposure at default (EAD), 55–56
External sources of risks, 26–27
Fahr, S., 154
Fazio, D. M., 22
Federico, P., 17, 22
Fell, J., 154, 157, 159
Fiat money, 123
Financial distress, models of credit risk, 41–42
Financial market environment, 10
Financial ratios, based on financial data, 96
Financial risk, 9
Financial Soundness Indicators (FSIs), 153
Financial stability, 5–8
risk assessment in banks, 29
Financial Stability Board (FSB), 150
Financial Stability Committee (FSC), 150
Financial Stability Oversight Council (FSOC), 150
Fixed interest rate, 63
gap, 61
Floating interest rates, 63
Flood, M., 159
Foglia, A., 46
Fong, T., 175
Foreign assets, 124
FSB. See Financial Stability Board (FSB)
FSC. See Financial Stability Committee (FSC)
FSIs. See Financial Soundness Indicators (FSIs)
FSOC. See Financial Stability Oversight Council (FSOC)
Fund
based balance sheet items, 117
based lending, 29–30
Funding
sources of, 114
structure of banks, 14–15
GAAP. See US Generally Accepted Accounting Principles (GAAP)
Gap analysis, 65
Gap risk, 60
US Generally Accepted Accounting Principles (GAAP), 26
Global banks, 22–23
Global Systemically Important Banks (G-SIBs), 175–177
Goldstein, M., 93
Goodhart, C., 185
Gourinchas, P.-O., 161
Government policies, 15
Greunig, H., 9, 96, 106, 111, 129, 130
G-SIBs. See Global Systemically Important Banks (G-SIBs)
Guarantees, 33
Haldeman, R. G., 42
Hanson, S. G., 145, 147, 170, 182
Hartmann, P., 161
Hartzell, J., 42
Herfindahl–Hirschman Index (HHI), 87
HHI. See Herfindahl-Hirschman Index (HHI)
High leverage, 1
Hodrick–Prescott filtered data, 171
Hogart, G., 4
Hoogduin, L., 145
Hopkin, P., 5
Household sector, 122
Huizinga, H., 93
IFRS. See International Financial Reporting Standards (IFRS)
Igan, D., 175
Impaired loans, solutions to, 38
Information sharing in crisis management, 189–201
Infrastructure environment, 10
Interest rate channel of monetary policy, 125, 126
Interest rate gap, 61–62
limitations of, 63–64
two versions of, 62
Interest rate risk
analysis, 64–66
benefits of duration, 67–73
causes of, 59–60
drawback of duration, 73
duration application to bank, 74–76
duration concept, 67
duration of portfolio, 76–77
duration of security, 76
effective duration, 73–74
fixed versus floating interest rates, 63
interest rate gap, 61–62
limitations of, 63–64
two versions of, 62
liquidity gap, 62
management, 66
balance sheet and non-balance sheet strategies for, 78
modified duration, 73
repricing analysis, 60
sources of, 60
structure of interest rates and, 62–63
variables for, 61
Internal sources of risks, 26–27
International Financial Reporting Standards (IFRS), 26
International Swaps and Derivatives Association (ISDA), 32
Investment banks, 21–22
Ioannidou, V., 161
ISDA. See International Swaps and Derivatives Association (ISDA)
Jacobson, T., 120
Jarrow, R., 51
Jokipii, T., 4
Kang, H., 175
Kashyap, A. K., 170, 182
Kattai, R., 45
Keller, C., 115
Key risk indicators (KRIs), 85
database, 97–100
Kindleberger, C., 154
Klingebiel, D., 4, 120
KMV model, 47–51
Köhler, M., 93
KRIs. See Key risk indicators (KRIs)
Kroszner, R. S., 4
Laeven, L., 4, 120
Landerretche, O., 161
Lang, M., 4, 16
LCR. See Liquidity coverage ratio (LCR)
Leverage ratio, 90
under basel III, 136–137
Levine, R., 22
LGD. See Loss Given Default (LGD)
Liability
structure of US bank, 3
Li, K.-F., 175
Lindé, J., 120
Liquidity
gap, 62
measurement, 15–19
ratio
under basel III, 137–139
defined, 16
Liquidity coverage ratio (LCR), 137–138
Liquidity risk
forms of liquidity regulations, 84
funding, 80
manage, 83–84
and solvency risk, 81
sources of liquidity gap, 80
and net present value of assets and liabilities, 80–81
systemic liquidity risks, 81–82
variants of liquidity ratio, 82–83
Local banks, 22–23
Loss Given Default (LGD), 52–55
Macaulay Duration, 66
Macroeconomic environment, 10
Macroeconomic models of credit risk, 44–47
Macroprudential approach, 167–169
Macroprudential policies, 163–164
in Euro area, 172–174
Macroprudential regulation, 150–152
complementary roles of, 166
defined, 149–150
drawbacks of, 165
EU banking union merging, 174–175
overlap, 166
tools, 154–159
types of data for, 152–154
Macro stress-testing models, 161
Market-based data, 153–154
Market-based financial system, 11
Market-oriented approach, 129
Meenen, L., 140
Mendelowitz, A., 159
Merton, R., 40, 48
Microprudential approach, 167–169
Microprudential regulation, 145
complementary roles of, 166
EU banking union merging, 174–175
instruments of, 146
overlap, 166
pitfall of, 146–149
Minsky, H. M., 154
Mishkin, F., 120
Monetary policy, 122–124
transmission mechanism of, 124–128
Money, defined, 123
Monnin, P., 4
Monte Carlo simulations, 44
Morris, S, 80
Mortgage-backed assets, 23
Narayanan, P., 42
Narrow money, defined, 124
NBFIs. See Non-bank financial institutions (NBFIs)
Net Stable Funding Ratio (NSFR), 16, 138–139
Neural networks, 208
Noguera, G., 120
Non-balance sheet strategies, for interest rate risk management, 78
Non-bank financial institutions (NBFIs), 129–130
Non-capital measures, 13–14
Non-core Tier 1 Capital, 135
Non-deposit funding, 21–22
Non-financial firm, 1–2
Non-fund-based balance sheet items, 117
Non-fund-based lending, 30
Non-interest income, 21
Northern Rock case study, 189–201
NSFR. See Net Stable Funding Ratio (NSFR)
Off-balance sheet, 31
activities, 23
Ongena, S., 161
Operating leverage, 2
Operational risks, 9, 85–86
Panel data models, 208
Peck, M., 42
Perotti, E. C., 140
von Peter, G., 121
Peydrò, J. L., 161
Pierret, D., 92
Political risk, 9, 87
Praet, P., 181
Prescriptive approach, 129
Profitability ratios, 95
Prompt Corrective Action, 182
Quantitative metrics, 6
Rajan, R., 4, 170
Rajan, R. G., 81
RAM. See Risk Assessment Matrix (RAM)
Ratings-inherent conflict of objectives among tripartite, 208–209
Ratings of customers, 205–208
Ratnovski, L., 140
Reduced form models of credit risk, 51
Regulation of banks, 129–130
Regulatory bodies, 24
Regulatory environment, 10
Reis, R., 4
Repricing analysis, 60
Repricing risk, 60
Retail-oriented banks, 21
Retana, M., 92
Risk
banking stability map, 102–103
based capital, 6
country, 86–87
credit, 19–20
currency, 84–85
defined, 5–6
effective management, 8–9
environmental, 9
equity, 86
financial, 9
financial stability risk map, 101–102
gap, 60
indicators, 95–96
internal and external sources of, 26–27
metrics, 6–7
mitigation policies initiated by banks, 8
operational, 9, 85–86
political, 9, 87
repricing, 60
solvency, 81
systemic, 159–160
weighted assets, 139–140
yield curve, 59
Risk Assessment Matrix (RAM), 7
example of, 9
Robust economy, 120
Rose, A., 177
Rosenberg, C., 115
Roszbach, K., 120
Roubini, N., 115
Roulet, C., 92
Saporta, V., 4
Schmidt, P. G., 16
Schoenmaker, D., 92, 175, 176, 177
Scholes, M., 48
Seal, K., 145
Securitisation, 33
Sensitivities factor, 6
Sensitivity analysis, 45
Setser, B., 115
Shadow banking system, 183
Shapiro, A., 86
Shin, H. S., 80
Shocks, defined, 47
SIFIs. See Systemically Important Financial Institutions (SIFIs)
Solvency risk, 81
Sound bank capital, for regulation, 92–93
Sound banking system, 13
Sources of Income, to Bank, 20
SRB. See Systemic risk buffer (SRB)
Statutory liquidity ratio, 84
Steffen, S., 92
Stein, J. C., 170, 182
Stiroh, K. J., 93
Straetmans, S., 161
Stress testing, 210–211
models, 46
Structural liquidity, 17
Structural models of credit risk, 47–51
Systematic approach, 1
to financial stability risk assessment in banks, 24
Systemically Important Financial Institutions (SIFIs), 150
Systemic liquidity risks, 81–82
Systemic risk, 159–160
indicators, 163
propagating avenues for, 162
sources of, 161
tools for identification of, 160–161
Systemic risk buffer (SRB), 23
System-wide approach, 166
Tabak, B. M., 22
Teubner, G., 129
Théoret, R., 15
Threshold values, defined, 4
Time dimension of systemic risk, 159
Tinbergen’s rule, 154–159
Transition matrix, 43
Transmission mechanism of monetary policy, 124–128
Tressel, T., 175
Tucker, P., 181
Turnbull, S., 51
Type I error, 209
Type II error, defined, 209
ULs. See Unexpected losses (ULs)
Unexpected losses (ULs), 209
Univariate analysis, 45
Valdés, R., 161
Valencia, F., 4
Value at Risk (VaR), 6
Van Greuning, H., 26
VaR. See Value at Risk (VaR)
Variable interest rate gap, 61
Vazquez, F., 17
Vestergaard, J., 92
Vlahu, R., 140
Volatility, defined, 6
Weighted least squares, 208
Wieladek, T., 177
Wolf, M., 1
Wong, T. C., 175
Wyplosz, C., 181
Yellen, J. L., 145
Yield curve risk, 59
ZETA score, 42
Zhang, Y., 175
Zhou, C., 148
Acharya, V.
, 92
Actuarial models of credit risk
, 51–52
Additional Tier 1 Capital
, 135
Adopt time-varying capital
, 182
Aggregate leverage of big banks
, 2
ALCO. See Asset/Liability Committee (ALCO)
Allen, F.
, 25
Allen, M.
, 115
ALM. See Asset liability management (ALM)
Altman, E. I.
, 41, 42
Altman’s Z-score
, 41
Artzner, P.
, 51
Assess banking sector vulnerability
, 93–95
Asset-backed commercial paper financing
, 23
Asset-based lending
, 30
Asset/Liability Committee (ALCO)
, 106
Asset liability management (ALM)
, 61, 106–113
Asset liability mismatch
, 65
Asset prices
, 120–122
Asset quality ratio, limitations of
, 87–88
Audits
, 11
Automated rating approach
, 206
Balance sheet
analysis of banks
, 107
assessment
, 114–116
repair
, 113
shrinkage
, 182–183
strategies for interest rate risk management
, 78
Bank
activities
, 11
based financial system
, 4, 11
business model and financial stability
, 20
investment banks
, 21–22
non-interest income
, 21
sources of banks’ income
, 20–21
dealing with failing
, 187
financial, operational and environmental risks impacting on
, 9–10
financial stability risk assessment in
, 29
funding structure of
, 14–15
higher capital requirements on
, 183–185
income, sources of
, 20–21
internal and external sources of risks to
, 26–27
liquidity creation
, 16
market concentration and risk
, 22
ratios
, 87
regulation of
, 129–130
risk management
, 24–26
safety nets for
, 181
systematic approach to financial stability risk assessment in
, 24
Banking business inherently risky
, 2–3
Banking sector
, 3–5
asset quality
, 87
crisis
, 120–122
measures to Bolster financial stability in
, 13–23
risk assessment
, 10–11
risk maps for
banking stability map
, 102–103
financial stability risk map
, 101–102
Banking soundness index
, 103
Basel Committee on Banking Supervision (2015)
, 2
Basel I, 1988 basel capital accord
, 130
Basel II
, 14, 130–131
Basel III
, 14, 16
bail-in bonds under
, 142
for banks
, 140–142
capital conservation buffer
, 135
components of
, 133–134
countercylical capital buffer
, 135–136
important financial institution surcharge under
, 139
regulation of banks
, 129–130
risk-weighting of assets under
, 139–140
Basel III Monitoring Report 2015
, 2
Beck, T.
, 22
Bernanke, B.
, 120
Better bank business models
, 15
Binary variables
, 4
Black, F.
, 48
Black-Scholes formula, for volatility
, 6
Blundell-Wignall. A.
, 92
Board of directors
, 11
Bologna, P.
, 19
Bolster financial stability, in banking sector
bank market concentration and risk
, 22
bank’s business model and financial stability
, 20
investment banks
, 21–22
non-interest income
, 21
sources of banks’ income
, 20–21
capital and non-capital measures
, 13–14
credit risk and performance
, 19–20
funding structure of banks
, 14–15
liquidity measurement
, 15–19
local versus global banks
, 22–23
off-balance sheet activities
, 23
structure of assets
, 22
systemic risk buffer
, 23
Borio, C.
, 154
Boyd, J.
, 22
Bratanovic, S. B.
, 9, 26, 96, 106, 111, 129, 130
Broader macroeconomic states
, 119–120
Broad money, defined
, 124
Brunnermeier, M.
, 93
Bunn, P.
, 46
Cajueiro, D. O., 22
Calmés, C., 15
Calomiris, C., 120
CAMELS framework, 96–101
Capital adequacy ratio (CAR), 148
Capital analysis of banks
capital ratios
types of bank, 88–92
sound bank capital for regulation, 92–93
Capital conservation buffer, 135
Capital measures, 13–14
Capital Requirements Directive (CRD), 209–210
Capital Requirements Regulation (CRR), 209–210
Caprio, G., 120
CAR. See Capital adequacy ratio (CAR)
Carey, A., 40, 95
Carling, K., 120
Cash debt coverage ratio, 15
Choi, H., 175
Claessens, S., 176
Collaterals, 32
Common equity Tier 1 capital, 89
Conditional migration probabilities, 44
Contagion models, 161
Contingent capital, 182
Continuous variables, 4
Countercylical capital buffer, 135–136
Country risk, 86–87
Covered bonds, 35
CRD. See Capital Requirements Directive (CRD)
Credit channel of monetary policy, 127–128
Credit risk, 210–211
components of exposure at default, 55–56
components of LGD, 56–58
concept of expected and unexpected losses, 52–55
exposure on balance sheets, 30–31
management, 37–38
measurement, 38–39
metrics, 34–37, 42–44
mitigation tools, 32–34
modelling
approaches, 39–40
data considerations, 205–206
models
actuarial models of, 51–52
of financial distress, 41–42
macroeconomic models, 44–47
reduced form models, 51
structural models, 47–51
nature of, 31
off-balance sheet, 31
and performance, 19–20
solutions to impaired loans, 38
sources of, 31–32
transfer, 34
Crisis management, information sharing in, 189–201
Crockett, A., 170
Cross-sectional dimension of systemic risk, 160
CRR. See Capital Requirements Regulation (CRR)
Cunningham, A., 46
Currency risk, 84–85
Data considerations, 205–206
Debt maturity adjustments, 183
Debt service coverage ratio, 37
Debt-to-equity ratio, 36
Default generating process (DGP), 206
Deferred tax assets, 142
Delbaen, F., 51
Dell’Ariccia, G., 4
Deloitte., 141
Demirgüç-Kunt, A., 22, 93
De Nicoló, G., 22
Deposit insurance, 182
Detragiache, E., 4
de Vries, C., 161
DGP. See Default generating process (DGP)
Diamond, D. W., 81
Dodd-Frank Act (2010), 182
Domestic assets, 124
Douglas, G., 25
Downside risk, 6
Drehmann, M., 46, 154
Duration
application to bank, 74–76
benefits of, 67–73
concept, 67
drawback of, 73
effective, 73–74
modified, 73
of portfolio, 76–77
of security, 76
Dwyer, G. P., 4
EAD. See Exposure at default (EAD)
Early-warning models, 160
Earnings perspective, 64
Economic index, 45
dependent variable, 44
Economic value perspective, 64–65
Effective risk management, 8–9
ELs. See Expected losses (ELs)
Emerging market scoring model, 42
Environmental risk, 9, 10
Equity risk, 86
ESRB. See European Systemic Risk Board (ESRB)
European Systemic Risk Board (ESRB), 150
Ex-ante regulation, 29
Exchange rate channel of monetary policy, 125
Expectations channel of monetary policy, 126–127
Expected losses (ELs), 209
Ex-post regulation, 29
Exposure at default (EAD), 55–56
External sources of risks, 26–27
Fahr, S., 154
Fazio, D. M., 22
Federico, P., 17, 22
Fell, J., 154, 157, 159
Fiat money, 123
Financial distress, models of credit risk, 41–42
Financial market environment, 10
Financial ratios, based on financial data, 96
Financial risk, 9
Financial Soundness Indicators (FSIs), 153
Financial stability, 5–8
risk assessment in banks, 29
Financial Stability Board (FSB), 150
Financial Stability Committee (FSC), 150
Financial Stability Oversight Council (FSOC), 150
Fixed interest rate, 63
gap, 61
Floating interest rates, 63
Flood, M., 159
Foglia, A., 46
Fong, T., 175
Foreign assets, 124
FSB. See Financial Stability Board (FSB)
FSC. See Financial Stability Committee (FSC)
FSIs. See Financial Soundness Indicators (FSIs)
FSOC. See Financial Stability Oversight Council (FSOC)
Fund
based balance sheet items, 117
based lending, 29–30
Funding
sources of, 114
structure of banks, 14–15
GAAP. See US Generally Accepted Accounting Principles (GAAP)
Gap analysis, 65
Gap risk, 60
US Generally Accepted Accounting Principles (GAAP), 26
Global banks, 22–23
Global Systemically Important Banks (G-SIBs), 175–177
Goldstein, M., 93
Goodhart, C., 185
Gourinchas, P.-O., 161
Government policies, 15
Greunig, H., 9, 96, 106, 111, 129, 130
G-SIBs. See Global Systemically Important Banks (G-SIBs)
Guarantees, 33
Haldeman, R. G., 42
Hanson, S. G., 145, 147, 170, 182
Hartmann, P., 161
Hartzell, J., 42
Herfindahl–Hirschman Index (HHI), 87
HHI. See Herfindahl-Hirschman Index (HHI)
High leverage, 1
Hodrick–Prescott filtered data, 171
Hogart, G., 4
Hoogduin, L., 145
Hopkin, P., 5
Household sector, 122
Huizinga, H., 93
IFRS. See International Financial Reporting Standards (IFRS)
Igan, D., 175
Impaired loans, solutions to, 38
Information sharing in crisis management, 189–201
Infrastructure environment, 10
Interest rate channel of monetary policy, 125, 126
Interest rate gap, 61–62
limitations of, 63–64
two versions of, 62
Interest rate risk
analysis, 64–66
benefits of duration, 67–73
causes of, 59–60
drawback of duration, 73
duration application to bank, 74–76
duration concept, 67
duration of portfolio, 76–77
duration of security, 76
effective duration, 73–74
fixed versus floating interest rates, 63
interest rate gap, 61–62
limitations of, 63–64
two versions of, 62
liquidity gap, 62
management, 66
balance sheet and non-balance sheet strategies for, 78
modified duration, 73
repricing analysis, 60
sources of, 60
structure of interest rates and, 62–63
variables for, 61
Internal sources of risks, 26–27
International Financial Reporting Standards (IFRS), 26
International Swaps and Derivatives Association (ISDA), 32
Investment banks, 21–22
Ioannidou, V., 161
ISDA. See International Swaps and Derivatives Association (ISDA)
Jacobson, T., 120
Jarrow, R., 51
Jokipii, T., 4
Kang, H., 175
Kashyap, A. K., 170, 182
Kattai, R., 45
Keller, C., 115
Key risk indicators (KRIs), 85
database, 97–100
Kindleberger, C., 154
Klingebiel, D., 4, 120
KMV model, 47–51
Köhler, M., 93
KRIs. See Key risk indicators (KRIs)
Kroszner, R. S., 4
Laeven, L., 4, 120
Landerretche, O., 161
Lang, M., 4, 16
LCR. See Liquidity coverage ratio (LCR)
Leverage ratio, 90
under basel III, 136–137
Levine, R., 22
LGD. See Loss Given Default (LGD)
Liability
structure of US bank, 3
Li, K.-F., 175
Lindé, J., 120
Liquidity
gap, 62
measurement, 15–19
ratio
under basel III, 137–139
defined, 16
Liquidity coverage ratio (LCR), 137–138
Liquidity risk
forms of liquidity regulations, 84
funding, 80
manage, 83–84
and solvency risk, 81
sources of liquidity gap, 80
and net present value of assets and liabilities, 80–81
systemic liquidity risks, 81–82
variants of liquidity ratio, 82–83
Local banks, 22–23
Loss Given Default (LGD), 52–55
Macaulay Duration, 66
Macroeconomic environment, 10
Macroeconomic models of credit risk, 44–47
Macroprudential approach, 167–169
Macroprudential policies, 163–164
in Euro area, 172–174
Macroprudential regulation, 150–152
complementary roles of, 166
defined, 149–150
drawbacks of, 165
EU banking union merging, 174–175
overlap, 166
tools, 154–159
types of data for, 152–154
Macro stress-testing models, 161
Market-based data, 153–154
Market-based financial system, 11
Market-oriented approach, 129
Meenen, L., 140
Mendelowitz, A., 159
Merton, R., 40, 48
Microprudential approach, 167–169
Microprudential regulation, 145
complementary roles of, 166
EU banking union merging, 174–175
instruments of, 146
overlap, 166
pitfall of, 146–149
Minsky, H. M., 154
Mishkin, F., 120
Monetary policy, 122–124
transmission mechanism of, 124–128
Money, defined, 123
Monnin, P., 4
Monte Carlo simulations, 44
Morris, S, 80
Mortgage-backed assets, 23
Narayanan, P., 42
Narrow money, defined, 124
NBFIs. See Non-bank financial institutions (NBFIs)
Net Stable Funding Ratio (NSFR), 16, 138–139
Neural networks, 208
Noguera, G., 120
Non-balance sheet strategies, for interest rate risk management, 78
Non-bank financial institutions (NBFIs), 129–130
Non-capital measures, 13–14
Non-core Tier 1 Capital, 135
Non-deposit funding, 21–22
Non-financial firm, 1–2
Non-fund-based balance sheet items, 117
Non-fund-based lending, 30
Non-interest income, 21
Northern Rock case study, 189–201
NSFR. See Net Stable Funding Ratio (NSFR)
Off-balance sheet, 31
activities, 23
Ongena, S., 161
Operating leverage, 2
Operational risks, 9, 85–86
Panel data models, 208
Peck, M., 42
Perotti, E. C., 140
von Peter, G., 121
Peydrò, J. L., 161
Pierret, D., 92
Political risk, 9, 87
Praet, P., 181
Prescriptive approach, 129
Profitability ratios, 95
Prompt Corrective Action, 182
Quantitative metrics, 6
Rajan, R., 4, 170
Rajan, R. G., 81
RAM. See Risk Assessment Matrix (RAM)
Ratings-inherent conflict of objectives among tripartite, 208–209
Ratings of customers, 205–208
Ratnovski, L., 140
Reduced form models of credit risk, 51
Regulation of banks, 129–130
Regulatory bodies, 24
Regulatory environment, 10
Reis, R., 4
Repricing analysis, 60
Repricing risk, 60
Retail-oriented banks, 21
Retana, M., 92
Risk
banking stability map, 102–103
based capital, 6
country, 86–87
credit, 19–20
currency, 84–85
defined, 5–6
effective management, 8–9
environmental, 9
equity, 86
financial, 9
financial stability risk map, 101–102
gap, 60
indicators, 95–96
internal and external sources of, 26–27
metrics, 6–7
mitigation policies initiated by banks, 8
operational, 9, 85–86
political, 9, 87
repricing, 60
solvency, 81
systemic, 159–160
weighted assets, 139–140
yield curve, 59
Risk Assessment Matrix (RAM), 7
example of, 9
Robust economy, 120
Rose, A., 177
Rosenberg, C., 115
Roszbach, K., 120
Roubini, N., 115
Roulet, C., 92
Saporta, V., 4
Schmidt, P. G., 16
Schoenmaker, D., 92, 175, 176, 177
Scholes, M., 48
Seal, K., 145
Securitisation, 33
Sensitivities factor, 6
Sensitivity analysis, 45
Setser, B., 115
Shadow banking system, 183
Shapiro, A., 86
Shin, H. S., 80
Shocks, defined, 47
SIFIs. See Systemically Important Financial Institutions (SIFIs)
Solvency risk, 81
Sound bank capital, for regulation, 92–93
Sound banking system, 13
Sources of Income, to Bank, 20
SRB. See Systemic risk buffer (SRB)
Statutory liquidity ratio, 84
Steffen, S., 92
Stein, J. C., 170, 182
Stiroh, K. J., 93
Straetmans, S., 161
Stress testing, 210–211
models, 46
Structural liquidity, 17
Structural models of credit risk, 47–51
Systematic approach, 1
to financial stability risk assessment in banks, 24
Systemically Important Financial Institutions (SIFIs), 150
Systemic liquidity risks, 81–82
Systemic risk, 159–160
indicators, 163
propagating avenues for, 162
sources of, 161
tools for identification of, 160–161
Systemic risk buffer (SRB), 23
System-wide approach, 166
Tabak, B. M., 22
Teubner, G., 129
Théoret, R., 15
Threshold values, defined, 4
Time dimension of systemic risk, 159
Tinbergen’s rule, 154–159
Transition matrix, 43
Transmission mechanism of monetary policy, 124–128
Tressel, T., 175
Tucker, P., 181
Turnbull, S., 51
Type I error, 209
Type II error, defined, 209
ULs. See Unexpected losses (ULs)
Unexpected losses (ULs), 209
Univariate analysis, 45
Valdés, R., 161
Valencia, F., 4
Value at Risk (VaR), 6
Van Greuning, H., 26
VaR. See Value at Risk (VaR)
Variable interest rate gap, 61
Vazquez, F., 17
Vestergaard, J., 92
Vlahu, R., 140
Volatility, defined, 6
Weighted least squares, 208
Wieladek, T., 177
Wolf, M., 1
Wong, T. C., 175
Wyplosz, C., 181
Yellen, J. L., 145
Yield curve risk, 59
ZETA score, 42
Zhang, Y., 175
Zhou, C., 148
Cajueiro, D. O.
, 22
Calmés, C.
, 15
Calomiris, C.
, 120
CAMELS framework
, 96–101
Capital adequacy ratio (CAR)
, 148
Capital analysis of banks
capital ratios
types of bank
, 88–92
sound bank capital for regulation
, 92–93
Capital conservation buffer
, 135
Capital measures
, 13–14
Capital Requirements Directive (CRD)
, 209–210
Capital Requirements Regulation (CRR)
, 209–210
Caprio, G.
, 120
CAR. See Capital adequacy ratio (CAR)
Carey, A.
, 40, 95
Carling, K.
, 120
Cash debt coverage ratio
, 15
Choi, H.
, 175
Claessens, S.
, 176
Collaterals
, 32
Common equity Tier 1 capital
, 89
Conditional migration probabilities
, 44
Contagion models
, 161
Contingent capital
, 182
Continuous variables
, 4
Countercylical capital buffer
, 135–136
Country risk
, 86–87
Covered bonds
, 35
CRD. See Capital Requirements Directive (CRD)
Credit channel of monetary policy
, 127–128
Credit risk
, 210–211
components of exposure at default
, 55–56
components of LGD
, 56–58
concept of expected and unexpected losses
, 52–55
exposure on balance sheets
, 30–31
management
, 37–38
measurement
, 38–39
metrics
, 34–37, 42–44
mitigation tools
, 32–34
modelling
approaches
, 39–40
data considerations
, 205–206
models
actuarial models of
, 51–52
of financial distress
, 41–42
macroeconomic models
, 44–47
reduced form models
, 51
structural models
, 47–51
nature of
, 31
off-balance sheet
, 31
and performance
, 19–20
solutions to impaired loans
, 38
sources of
, 31–32
transfer
, 34
Crisis management, information sharing in
, 189–201
Crockett, A.
, 170
Cross-sectional dimension of systemic risk
, 160
CRR. See Capital Requirements Regulation (CRR)
Cunningham, A.
, 46
Currency risk
, 84–85
Data considerations
, 205–206
Debt maturity adjustments
, 183
Debt service coverage ratio
, 37
Debt-to-equity ratio
, 36
Default generating process (DGP)
, 206
Deferred tax assets
, 142
Delbaen, F.
, 51
Dell’Ariccia, G.
, 4
Deloitte.
, 141
Demirgüç-Kunt, A.
, 22, 93
De Nicoló, G.
, 22
Deposit insurance
, 182
Detragiache, E.
, 4
de Vries, C.
, 161
DGP. See Default generating process (DGP)
Diamond, D. W.
, 81
Dodd-Frank Act (2010)
, 182
Domestic assets
, 124
Douglas, G.
, 25
Downside risk
, 6
Drehmann, M.
, 46, 154
Duration
application to bank
, 74–76
benefits of
, 67–73
concept
, 67
drawback of
, 73
effective
, 73–74
modified
, 73
of portfolio
, 76–77
of security
, 76
Dwyer, G. P.
, 4
EAD. See Exposure at default (EAD)
Early-warning models, 160
Earnings perspective, 64
Economic index, 45
dependent variable, 44
Economic value perspective, 64–65
Effective risk management, 8–9
ELs. See Expected losses (ELs)
Emerging market scoring model, 42
Environmental risk, 9, 10
Equity risk, 86
ESRB. See European Systemic Risk Board (ESRB)
European Systemic Risk Board (ESRB), 150
Ex-ante regulation, 29
Exchange rate channel of monetary policy, 125
Expectations channel of monetary policy, 126–127
Expected losses (ELs), 209
Ex-post regulation, 29
Exposure at default (EAD), 55–56
External sources of risks, 26–27
Fahr, S., 154
Fazio, D. M., 22
Federico, P., 17, 22
Fell, J., 154, 157, 159
Fiat money, 123
Financial distress, models of credit risk, 41–42
Financial market environment, 10
Financial ratios, based on financial data, 96
Financial risk, 9
Financial Soundness Indicators (FSIs), 153
Financial stability, 5–8
risk assessment in banks, 29
Financial Stability Board (FSB), 150
Financial Stability Committee (FSC), 150
Financial Stability Oversight Council (FSOC), 150
Fixed interest rate, 63
gap, 61
Floating interest rates, 63
Flood, M., 159
Foglia, A., 46
Fong, T., 175
Foreign assets, 124
FSB. See Financial Stability Board (FSB)
FSC. See Financial Stability Committee (FSC)
FSIs. See Financial Soundness Indicators (FSIs)
FSOC. See Financial Stability Oversight Council (FSOC)
Fund
based balance sheet items, 117
based lending, 29–30
Funding
sources of, 114
structure of banks, 14–15
GAAP. See US Generally Accepted Accounting Principles (GAAP)
Gap analysis, 65
Gap risk, 60
US Generally Accepted Accounting Principles (GAAP), 26
Global banks, 22–23
Global Systemically Important Banks (G-SIBs), 175–177
Goldstein, M., 93
Goodhart, C., 185
Gourinchas, P.-O., 161
Government policies, 15
Greunig, H., 9, 96, 106, 111, 129, 130
G-SIBs. See Global Systemically Important Banks (G-SIBs)
Guarantees, 33
Haldeman, R. G., 42
Hanson, S. G., 145, 147, 170, 182
Hartmann, P., 161
Hartzell, J., 42
Herfindahl–Hirschman Index (HHI), 87
HHI. See Herfindahl-Hirschman Index (HHI)
High leverage, 1
Hodrick–Prescott filtered data, 171
Hogart, G., 4
Hoogduin, L., 145
Hopkin, P., 5
Household sector, 122
Huizinga, H., 93
IFRS. See International Financial Reporting Standards (IFRS)
Igan, D., 175
Impaired loans, solutions to, 38
Information sharing in crisis management, 189–201
Infrastructure environment, 10
Interest rate channel of monetary policy, 125, 126
Interest rate gap, 61–62
limitations of, 63–64
two versions of, 62
Interest rate risk
analysis, 64–66
benefits of duration, 67–73
causes of, 59–60
drawback of duration, 73
duration application to bank, 74–76
duration concept, 67
duration of portfolio, 76–77
duration of security, 76
effective duration, 73–74
fixed versus floating interest rates, 63
interest rate gap, 61–62
limitations of, 63–64
two versions of, 62
liquidity gap, 62
management, 66
balance sheet and non-balance sheet strategies for, 78
modified duration, 73
repricing analysis, 60
sources of, 60
structure of interest rates and, 62–63
variables for, 61
Internal sources of risks, 26–27
International Financial Reporting Standards (IFRS), 26
International Swaps and Derivatives Association (ISDA), 32
Investment banks, 21–22
Ioannidou, V., 161
ISDA. See International Swaps and Derivatives Association (ISDA)
Jacobson, T., 120
Jarrow, R., 51
Jokipii, T., 4
Kang, H., 175
Kashyap, A. K., 170, 182
Kattai, R., 45
Keller, C., 115
Key risk indicators (KRIs), 85
database, 97–100
Kindleberger, C., 154
Klingebiel, D., 4, 120
KMV model, 47–51
Köhler, M., 93
KRIs. See Key risk indicators (KRIs)
Kroszner, R. S., 4
Laeven, L., 4, 120
Landerretche, O., 161
Lang, M., 4, 16
LCR. See Liquidity coverage ratio (LCR)
Leverage ratio, 90
under basel III, 136–137
Levine, R., 22
LGD. See Loss Given Default (LGD)
Liability
structure of US bank, 3
Li, K.-F., 175
Lindé, J., 120
Liquidity
gap, 62
measurement, 15–19
ratio
under basel III, 137–139
defined, 16
Liquidity coverage ratio (LCR), 137–138
Liquidity risk
forms of liquidity regulations, 84
funding, 80
manage, 83–84
and solvency risk, 81
sources of liquidity gap, 80
and net present value of assets and liabilities, 80–81
systemic liquidity risks, 81–82
variants of liquidity ratio, 82–83
Local banks, 22–23
Loss Given Default (LGD), 52–55
Macaulay Duration, 66
Macroeconomic environment, 10
Macroeconomic models of credit risk, 44–47
Macroprudential approach, 167–169
Macroprudential policies, 163–164
in Euro area, 172–174
Macroprudential regulation, 150–152
complementary roles of, 166
defined, 149–150
drawbacks of, 165
EU banking union merging, 174–175
overlap, 166
tools, 154–159
types of data for, 152–154
Macro stress-testing models, 161
Market-based data, 153–154
Market-based financial system, 11
Market-oriented approach, 129
Meenen, L., 140
Mendelowitz, A., 159
Merton, R., 40, 48
Microprudential approach, 167–169
Microprudential regulation, 145
complementary roles of, 166
EU banking union merging, 174–175
instruments of, 146
overlap, 166
pitfall of, 146–149
Minsky, H. M., 154
Mishkin, F., 120
Monetary policy, 122–124
transmission mechanism of, 124–128
Money, defined, 123
Monnin, P., 4
Monte Carlo simulations, 44
Morris, S, 80
Mortgage-backed assets, 23
Narayanan, P., 42
Narrow money, defined, 124
NBFIs. See Non-bank financial institutions (NBFIs)
Net Stable Funding Ratio (NSFR), 16, 138–139
Neural networks, 208
Noguera, G., 120
Non-balance sheet strategies, for interest rate risk management, 78
Non-bank financial institutions (NBFIs), 129–130
Non-capital measures, 13–14
Non-core Tier 1 Capital, 135
Non-deposit funding, 21–22
Non-financial firm, 1–2
Non-fund-based balance sheet items, 117
Non-fund-based lending, 30
Non-interest income, 21
Northern Rock case study, 189–201
NSFR. See Net Stable Funding Ratio (NSFR)
Off-balance sheet, 31
activities, 23
Ongena, S., 161
Operating leverage, 2
Operational risks, 9, 85–86
Panel data models, 208
Peck, M., 42
Perotti, E. C., 140
von Peter, G., 121
Peydrò, J. L., 161
Pierret, D., 92
Political risk, 9, 87
Praet, P., 181
Prescriptive approach, 129
Profitability ratios, 95
Prompt Corrective Action, 182
Quantitative metrics, 6
Rajan, R., 4, 170
Rajan, R. G., 81
RAM. See Risk Assessment Matrix (RAM)
Ratings-inherent conflict of objectives among tripartite, 208–209
Ratings of customers, 205–208
Ratnovski, L., 140
Reduced form models of credit risk, 51
Regulation of banks, 129–130
Regulatory bodies, 24
Regulatory environment, 10
Reis, R., 4
Repricing analysis, 60
Repricing risk, 60
Retail-oriented banks, 21
Retana, M., 92
Risk
banking stability map, 102–103
based capital, 6
country, 86–87
credit, 19–20
currency, 84–85
defined, 5–6
effective management, 8–9
environmental, 9
equity, 86
financial, 9
financial stability risk map, 101–102
gap, 60
indicators, 95–96
internal and external sources of, 26–27
metrics, 6–7
mitigation policies initiated by banks, 8
operational, 9, 85–86
political, 9, 87
repricing, 60
solvency, 81
systemic, 159–160
weighted assets, 139–140
yield curve, 59
Risk Assessment Matrix (RAM), 7
example of, 9
Robust economy, 120
Rose, A., 177
Rosenberg, C., 115
Roszbach, K., 120
Roubini, N., 115
Roulet, C., 92
Saporta, V., 4
Schmidt, P. G., 16
Schoenmaker, D., 92, 175, 176, 177
Scholes, M., 48
Seal, K., 145
Securitisation, 33
Sensitivities factor, 6
Sensitivity analysis, 45
Setser, B., 115
Shadow banking system, 183
Shapiro, A., 86
Shin, H. S., 80
Shocks, defined, 47
SIFIs. See Systemically Important Financial Institutions (SIFIs)
Solvency risk, 81
Sound bank capital, for regulation, 92–93
Sound banking system, 13
Sources of Income, to Bank, 20
SRB. See Systemic risk buffer (SRB)
Statutory liquidity ratio, 84
Steffen, S., 92
Stein, J. C., 170, 182
Stiroh, K. J., 93
Straetmans, S., 161
Stress testing, 210–211
models, 46
Structural liquidity, 17
Structural models of credit risk, 47–51
Systematic approach, 1
to financial stability risk assessment in banks, 24
Systemically Important Financial Institutions (SIFIs), 150
Systemic liquidity risks, 81–82
Systemic risk, 159–160
indicators, 163
propagating avenues for, 162
sources of, 161
tools for identification of, 160–161
Systemic risk buffer (SRB), 23
System-wide approach, 166
Tabak, B. M., 22
Teubner, G., 129
Théoret, R., 15
Threshold values, defined, 4
Time dimension of systemic risk, 159
Tinbergen’s rule, 154–159
Transition matrix, 43
Transmission mechanism of monetary policy, 124–128
Tressel, T., 175
Tucker, P., 181
Turnbull, S., 51
Type I error, 209
Type II error, defined, 209
ULs. See Unexpected losses (ULs)
Unexpected losses (ULs), 209
Univariate analysis, 45
Valdés, R., 161
Valencia, F., 4
Value at Risk (VaR), 6
Van Greuning, H., 26
VaR. See Value at Risk (VaR)
Variable interest rate gap, 61
Vazquez, F., 17
Vestergaard, J., 92
Vlahu, R., 140
Volatility, defined, 6
Weighted least squares, 208
Wieladek, T., 177
Wolf, M., 1
Wong, T. C., 175
Wyplosz, C., 181
Yellen, J. L., 145
Yield curve risk, 59
ZETA score, 42
Zhang, Y., 175
Zhou, C., 148
EAD. See Exposure at default (EAD)
Early-warning models
, 160
Earnings perspective
, 64
Economic index
, 45
dependent variable
, 44
Economic value perspective
, 64–65
Effective risk management
, 8–9
ELs. See Expected losses (ELs)
Emerging market scoring model
, 42
Environmental risk
, 9, 10
Equity risk
, 86
ESRB. See European Systemic Risk Board (ESRB)
European Systemic Risk Board (ESRB)
, 150
Ex-ante regulation
, 29
Exchange rate channel of monetary policy
, 125
Expectations channel of monetary policy
, 126–127
Expected losses (ELs)
, 209
Ex-post regulation
, 29
Exposure at default (EAD)
, 55–56
External sources of risks
, 26–27
Fahr, S.
, 154
Fazio, D. M.
, 22
Federico, P.
, 17, 22
Fell, J.
, 154, 157, 159
Fiat money
, 123
Financial distress, models of credit risk
, 41–42
Financial market environment
, 10
Financial ratios, based on financial data
, 96
Financial risk
, 9
Financial Soundness Indicators (FSIs)
, 153
Financial stability
, 5–8
risk assessment in banks
, 29
Financial Stability Board (FSB)
, 150
Financial Stability Committee (FSC)
, 150
Financial Stability Oversight Council (FSOC)
, 150
Fixed interest rate
, 63
gap
, 61
Floating interest rates
, 63
Flood, M.
, 159
Foglia, A.
, 46
Fong, T.
, 175
Foreign assets
, 124
FSB. See Financial Stability Board (FSB)
FSC. See Financial Stability Committee (FSC)
FSIs. See Financial Soundness Indicators (FSIs)
FSOC. See Financial Stability Oversight Council (FSOC)
Fund
based balance sheet items
, 117
based lending
, 29–30
Funding
sources of
, 114
structure of banks
, 14–15
GAAP. See US Generally Accepted Accounting Principles (GAAP)
Gap analysis, 65
Gap risk, 60
US Generally Accepted Accounting Principles (GAAP), 26
Global banks, 22–23
Global Systemically Important Banks (G-SIBs), 175–177
Goldstein, M., 93
Goodhart, C., 185
Gourinchas, P.-O., 161
Government policies, 15
Greunig, H., 9, 96, 106, 111, 129, 130
G-SIBs. See Global Systemically Important Banks (G-SIBs)
Guarantees, 33
Haldeman, R. G., 42
Hanson, S. G., 145, 147, 170, 182
Hartmann, P., 161
Hartzell, J., 42
Herfindahl–Hirschman Index (HHI), 87
HHI. See Herfindahl-Hirschman Index (HHI)
High leverage, 1
Hodrick–Prescott filtered data, 171
Hogart, G., 4
Hoogduin, L., 145
Hopkin, P., 5
Household sector, 122
Huizinga, H., 93
IFRS. See International Financial Reporting Standards (IFRS)
Igan, D., 175
Impaired loans, solutions to, 38
Information sharing in crisis management, 189–201
Infrastructure environment, 10
Interest rate channel of monetary policy, 125, 126
Interest rate gap, 61–62
limitations of, 63–64
two versions of, 62
Interest rate risk
analysis, 64–66
benefits of duration, 67–73
causes of, 59–60
drawback of duration, 73
duration application to bank, 74–76
duration concept, 67
duration of portfolio, 76–77
duration of security, 76
effective duration, 73–74
fixed versus floating interest rates, 63
interest rate gap, 61–62
limitations of, 63–64
two versions of, 62
liquidity gap, 62
management, 66
balance sheet and non-balance sheet strategies for, 78
modified duration, 73
repricing analysis, 60
sources of, 60
structure of interest rates and, 62–63
variables for, 61
Internal sources of risks, 26–27
International Financial Reporting Standards (IFRS), 26
International Swaps and Derivatives Association (ISDA), 32
Investment banks, 21–22
Ioannidou, V., 161
ISDA. See International Swaps and Derivatives Association (ISDA)
Jacobson, T., 120
Jarrow, R., 51
Jokipii, T., 4
Kang, H., 175
Kashyap, A. K., 170, 182
Kattai, R., 45
Keller, C., 115
Key risk indicators (KRIs), 85
database, 97–100
Kindleberger, C., 154
Klingebiel, D., 4, 120
KMV model, 47–51
Köhler, M., 93
KRIs. See Key risk indicators (KRIs)
Kroszner, R. S., 4
Laeven, L., 4, 120
Landerretche, O., 161
Lang, M., 4, 16
LCR. See Liquidity coverage ratio (LCR)
Leverage ratio, 90
under basel III, 136–137
Levine, R., 22
LGD. See Loss Given Default (LGD)
Liability
structure of US bank, 3
Li, K.-F., 175
Lindé, J., 120
Liquidity
gap, 62
measurement, 15–19
ratio
under basel III, 137–139
defined, 16
Liquidity coverage ratio (LCR), 137–138
Liquidity risk
forms of liquidity regulations, 84
funding, 80
manage, 83–84
and solvency risk, 81
sources of liquidity gap, 80
and net present value of assets and liabilities, 80–81
systemic liquidity risks, 81–82
variants of liquidity ratio, 82–83
Local banks, 22–23
Loss Given Default (LGD), 52–55
Macaulay Duration, 66
Macroeconomic environment, 10
Macroeconomic models of credit risk, 44–47
Macroprudential approach, 167–169
Macroprudential policies, 163–164
in Euro area, 172–174
Macroprudential regulation, 150–152
complementary roles of, 166
defined, 149–150
drawbacks of, 165
EU banking union merging, 174–175
overlap, 166
tools, 154–159
types of data for, 152–154
Macro stress-testing models, 161
Market-based data, 153–154
Market-based financial system, 11
Market-oriented approach, 129
Meenen, L., 140
Mendelowitz, A., 159
Merton, R., 40, 48
Microprudential approach, 167–169
Microprudential regulation, 145
complementary roles of, 166
EU banking union merging, 174–175
instruments of, 146
overlap, 166
pitfall of, 146–149
Minsky, H. M., 154
Mishkin, F., 120
Monetary policy, 122–124
transmission mechanism of, 124–128
Money, defined, 123
Monnin, P., 4
Monte Carlo simulations, 44
Morris, S, 80
Mortgage-backed assets, 23
Narayanan, P., 42
Narrow money, defined, 124
NBFIs. See Non-bank financial institutions (NBFIs)
Net Stable Funding Ratio (NSFR), 16, 138–139
Neural networks, 208
Noguera, G., 120
Non-balance sheet strategies, for interest rate risk management, 78
Non-bank financial institutions (NBFIs), 129–130
Non-capital measures, 13–14
Non-core Tier 1 Capital, 135
Non-deposit funding, 21–22
Non-financial firm, 1–2
Non-fund-based balance sheet items, 117
Non-fund-based lending, 30
Non-interest income, 21
Northern Rock case study, 189–201
NSFR. See Net Stable Funding Ratio (NSFR)
Off-balance sheet, 31
activities, 23
Ongena, S., 161
Operating leverage, 2
Operational risks, 9, 85–86
Panel data models, 208
Peck, M., 42
Perotti, E. C., 140
von Peter, G., 121
Peydrò, J. L., 161
Pierret, D., 92
Political risk, 9, 87
Praet, P., 181
Prescriptive approach, 129
Profitability ratios, 95
Prompt Corrective Action, 182
Quantitative metrics, 6
Rajan, R., 4, 170
Rajan, R. G., 81
RAM. See Risk Assessment Matrix (RAM)
Ratings-inherent conflict of objectives among tripartite, 208–209
Ratings of customers, 205–208
Ratnovski, L., 140
Reduced form models of credit risk, 51
Regulation of banks, 129–130
Regulatory bodies, 24
Regulatory environment, 10
Reis, R., 4
Repricing analysis, 60
Repricing risk, 60
Retail-oriented banks, 21
Retana, M., 92
Risk
banking stability map, 102–103
based capital, 6
country, 86–87
credit, 19–20
currency, 84–85
defined, 5–6
effective management, 8–9
environmental, 9
equity, 86
financial, 9
financial stability risk map, 101–102
gap, 60
indicators, 95–96
internal and external sources of, 26–27
metrics, 6–7
mitigation policies initiated by banks, 8
operational, 9, 85–86
political, 9, 87
repricing, 60
solvency, 81
systemic, 159–160
weighted assets, 139–140
yield curve, 59
Risk Assessment Matrix (RAM), 7
example of, 9
Robust economy, 120
Rose, A., 177
Rosenberg, C., 115
Roszbach, K., 120
Roubini, N., 115
Roulet, C., 92
Saporta, V., 4
Schmidt, P. G., 16
Schoenmaker, D., 92, 175, 176, 177
Scholes, M., 48
Seal, K., 145
Securitisation, 33
Sensitivities factor, 6
Sensitivity analysis, 45
Setser, B., 115
Shadow banking system, 183
Shapiro, A., 86
Shin, H. S., 80
Shocks, defined, 47
SIFIs. See Systemically Important Financial Institutions (SIFIs)
Solvency risk, 81
Sound bank capital, for regulation, 92–93
Sound banking system, 13
Sources of Income, to Bank, 20
SRB. See Systemic risk buffer (SRB)
Statutory liquidity ratio, 84
Steffen, S., 92
Stein, J. C., 170, 182
Stiroh, K. J., 93
Straetmans, S., 161
Stress testing, 210–211
models, 46
Structural liquidity, 17
Structural models of credit risk, 47–51
Systematic approach, 1
to financial stability risk assessment in banks, 24
Systemically Important Financial Institutions (SIFIs), 150
Systemic liquidity risks, 81–82
Systemic risk, 159–160
indicators, 163
propagating avenues for, 162
sources of, 161
tools for identification of, 160–161
Systemic risk buffer (SRB), 23
System-wide approach, 166
Tabak, B. M., 22
Teubner, G., 129
Théoret, R., 15
Threshold values, defined, 4
Time dimension of systemic risk, 159
Tinbergen’s rule, 154–159
Transition matrix, 43
Transmission mechanism of monetary policy, 124–128
Tressel, T., 175
Tucker, P., 181
Turnbull, S., 51
Type I error, 209
Type II error, defined, 209
ULs. See Unexpected losses (ULs)
Unexpected losses (ULs), 209
Univariate analysis, 45
Valdés, R., 161
Valencia, F., 4
Value at Risk (VaR), 6
Van Greuning, H., 26
VaR. See Value at Risk (VaR)
Variable interest rate gap, 61
Vazquez, F., 17
Vestergaard, J., 92
Vlahu, R., 140
Volatility, defined, 6
Weighted least squares, 208
Wieladek, T., 177
Wolf, M., 1
Wong, T. C., 175
Wyplosz, C., 181
Yellen, J. L., 145
Yield curve risk, 59
ZETA score, 42
Zhang, Y., 175
Zhou, C., 148
GAAP. See US Generally Accepted Accounting Principles (GAAP)
Gap analysis
, 65
Gap risk
, 60
US Generally Accepted Accounting Principles (GAAP)
, 26
Global banks
, 22–23
Global Systemically Important Banks (G-SIBs)
, 175–177
Goldstein, M.
, 93
Goodhart, C.
, 185
Gourinchas, P.-O.
, 161
Government policies
, 15
Greunig, H.
, 9, 96, 106, 111, 129, 130
G-SIBs. See Global Systemically Important Banks (G-SIBs)
Guarantees
, 33
Haldeman, R. G.
, 42
Hanson, S. G.
, 145, 147, 170, 182
Hartmann, P.
, 161
Hartzell, J.
, 42
Herfindahl–Hirschman Index (HHI)
, 87
HHI. See Herfindahl-Hirschman Index (HHI)
High leverage
, 1
Hodrick–Prescott filtered data
, 171
Hogart, G.
, 4
Hoogduin, L.
, 145
Hopkin, P.
, 5
Household sector
, 122
Huizinga, H.
, 93
IFRS. See International Financial Reporting Standards (IFRS)
Igan, D., 175
Impaired loans, solutions to, 38
Information sharing in crisis management, 189–201
Infrastructure environment, 10
Interest rate channel of monetary policy, 125, 126
Interest rate gap, 61–62
limitations of, 63–64
two versions of, 62
Interest rate risk
analysis, 64–66
benefits of duration, 67–73
causes of, 59–60
drawback of duration, 73
duration application to bank, 74–76
duration concept, 67
duration of portfolio, 76–77
duration of security, 76
effective duration, 73–74
fixed versus floating interest rates, 63
interest rate gap, 61–62
limitations of, 63–64
two versions of, 62
liquidity gap, 62
management, 66
balance sheet and non-balance sheet strategies for, 78
modified duration, 73
repricing analysis, 60
sources of, 60
structure of interest rates and, 62–63
variables for, 61
Internal sources of risks, 26–27
International Financial Reporting Standards (IFRS), 26
International Swaps and Derivatives Association (ISDA), 32
Investment banks, 21–22
Ioannidou, V., 161
ISDA. See International Swaps and Derivatives Association (ISDA)
Jacobson, T., 120
Jarrow, R., 51
Jokipii, T., 4
Kang, H., 175
Kashyap, A. K., 170, 182
Kattai, R., 45
Keller, C., 115
Key risk indicators (KRIs), 85
database, 97–100
Kindleberger, C., 154
Klingebiel, D., 4, 120
KMV model, 47–51
Köhler, M., 93
KRIs. See Key risk indicators (KRIs)
Kroszner, R. S., 4
Laeven, L., 4, 120
Landerretche, O., 161
Lang, M., 4, 16
LCR. See Liquidity coverage ratio (LCR)
Leverage ratio, 90
under basel III, 136–137
Levine, R., 22
LGD. See Loss Given Default (LGD)
Liability
structure of US bank, 3
Li, K.-F., 175
Lindé, J., 120
Liquidity
gap, 62
measurement, 15–19
ratio
under basel III, 137–139
defined, 16
Liquidity coverage ratio (LCR), 137–138
Liquidity risk
forms of liquidity regulations, 84
funding, 80
manage, 83–84
and solvency risk, 81
sources of liquidity gap, 80
and net present value of assets and liabilities, 80–81
systemic liquidity risks, 81–82
variants of liquidity ratio, 82–83
Local banks, 22–23
Loss Given Default (LGD), 52–55
Macaulay Duration, 66
Macroeconomic environment, 10
Macroeconomic models of credit risk, 44–47
Macroprudential approach, 167–169
Macroprudential policies, 163–164
in Euro area, 172–174
Macroprudential regulation, 150–152
complementary roles of, 166
defined, 149–150
drawbacks of, 165
EU banking union merging, 174–175
overlap, 166
tools, 154–159
types of data for, 152–154
Macro stress-testing models, 161
Market-based data, 153–154
Market-based financial system, 11
Market-oriented approach, 129
Meenen, L., 140
Mendelowitz, A., 159
Merton, R., 40, 48
Microprudential approach, 167–169
Microprudential regulation, 145
complementary roles of, 166
EU banking union merging, 174–175
instruments of, 146
overlap, 166
pitfall of, 146–149
Minsky, H. M., 154
Mishkin, F., 120
Monetary policy, 122–124
transmission mechanism of, 124–128
Money, defined, 123
Monnin, P., 4
Monte Carlo simulations, 44
Morris, S, 80
Mortgage-backed assets, 23
Narayanan, P., 42
Narrow money, defined, 124
NBFIs. See Non-bank financial institutions (NBFIs)
Net Stable Funding Ratio (NSFR), 16, 138–139
Neural networks, 208
Noguera, G., 120
Non-balance sheet strategies, for interest rate risk management, 78
Non-bank financial institutions (NBFIs), 129–130
Non-capital measures, 13–14
Non-core Tier 1 Capital, 135
Non-deposit funding, 21–22
Non-financial firm, 1–2
Non-fund-based balance sheet items, 117
Non-fund-based lending, 30
Non-interest income, 21
Northern Rock case study, 189–201
NSFR. See Net Stable Funding Ratio (NSFR)
Off-balance sheet, 31
activities, 23
Ongena, S., 161
Operating leverage, 2
Operational risks, 9, 85–86
Panel data models, 208
Peck, M., 42
Perotti, E. C., 140
von Peter, G., 121
Peydrò, J. L., 161
Pierret, D., 92
Political risk, 9, 87
Praet, P., 181
Prescriptive approach, 129
Profitability ratios, 95
Prompt Corrective Action, 182
Quantitative metrics, 6
Rajan, R., 4, 170
Rajan, R. G., 81
RAM. See Risk Assessment Matrix (RAM)
Ratings-inherent conflict of objectives among tripartite, 208–209
Ratings of customers, 205–208
Ratnovski, L., 140
Reduced form models of credit risk, 51
Regulation of banks, 129–130
Regulatory bodies, 24
Regulatory environment, 10
Reis, R., 4
Repricing analysis, 60
Repricing risk, 60
Retail-oriented banks, 21
Retana, M., 92
Risk
banking stability map, 102–103
based capital, 6
country, 86–87
credit, 19–20
currency, 84–85
defined, 5–6
effective management, 8–9
environmental, 9
equity, 86
financial, 9
financial stability risk map, 101–102
gap, 60
indicators, 95–96
internal and external sources of, 26–27
metrics, 6–7
mitigation policies initiated by banks, 8
operational, 9, 85–86
political, 9, 87
repricing, 60
solvency, 81
systemic, 159–160
weighted assets, 139–140
yield curve, 59
Risk Assessment Matrix (RAM), 7
example of, 9
Robust economy, 120
Rose, A., 177
Rosenberg, C., 115
Roszbach, K., 120
Roubini, N., 115
Roulet, C., 92
Saporta, V., 4
Schmidt, P. G., 16
Schoenmaker, D., 92, 175, 176, 177
Scholes, M., 48
Seal, K., 145
Securitisation, 33
Sensitivities factor, 6
Sensitivity analysis, 45
Setser, B., 115
Shadow banking system, 183
Shapiro, A., 86
Shin, H. S., 80
Shocks, defined, 47
SIFIs. See Systemically Important Financial Institutions (SIFIs)
Solvency risk, 81
Sound bank capital, for regulation, 92–93
Sound banking system, 13
Sources of Income, to Bank, 20
SRB. See Systemic risk buffer (SRB)
Statutory liquidity ratio, 84
Steffen, S., 92
Stein, J. C., 170, 182
Stiroh, K. J., 93
Straetmans, S., 161
Stress testing, 210–211
models, 46
Structural liquidity, 17
Structural models of credit risk, 47–51
Systematic approach, 1
to financial stability risk assessment in banks, 24
Systemically Important Financial Institutions (SIFIs), 150
Systemic liquidity risks, 81–82
Systemic risk, 159–160
indicators, 163
propagating avenues for, 162
sources of, 161
tools for identification of, 160–161
Systemic risk buffer (SRB), 23
System-wide approach, 166
Tabak, B. M., 22
Teubner, G., 129
Théoret, R., 15
Threshold values, defined, 4
Time dimension of systemic risk, 159
Tinbergen’s rule, 154–159
Transition matrix, 43
Transmission mechanism of monetary policy, 124–128
Tressel, T., 175
Tucker, P., 181
Turnbull, S., 51
Type I error, 209
Type II error, defined, 209
ULs. See Unexpected losses (ULs)
Unexpected losses (ULs), 209
Univariate analysis, 45
Valdés, R., 161
Valencia, F., 4
Value at Risk (VaR), 6
Van Greuning, H., 26
VaR. See Value at Risk (VaR)
Variable interest rate gap, 61
Vazquez, F., 17
Vestergaard, J., 92
Vlahu, R., 140
Volatility, defined, 6
Weighted least squares, 208
Wieladek, T., 177
Wolf, M., 1
Wong, T. C., 175
Wyplosz, C., 181
Yellen, J. L., 145
Yield curve risk, 59
ZETA score, 42
Zhang, Y., 175
Zhou, C., 148
IFRS. See International Financial Reporting Standards (IFRS)
Igan, D.
, 175
Impaired loans, solutions to
, 38
Information sharing in crisis management
, 189–201
Infrastructure environment
, 10
Interest rate channel of monetary policy
, 125, 126
Interest rate gap
, 61–62
limitations of
, 63–64
two versions of
, 62
Interest rate risk
analysis
, 64–66
benefits of duration
, 67–73
causes of
, 59–60
drawback of duration
, 73
duration application to bank
, 74–76
duration concept
, 67
duration of portfolio
, 76–77
duration of security
, 76
effective duration
, 73–74
fixed versus floating interest rates
, 63
interest rate gap
, 61–62
limitations of
, 63–64
two versions of
, 62
liquidity gap
, 62
management
, 66
balance sheet and non-balance sheet strategies for
, 78
modified duration
, 73
repricing analysis
, 60
sources of
, 60
structure of interest rates and
, 62–63
variables for
, 61
Internal sources of risks
, 26–27
International Financial Reporting Standards (IFRS)
, 26
International Swaps and Derivatives Association (ISDA)
, 32
Investment banks
, 21–22
Ioannidou, V.
, 161
ISDA. See International Swaps and Derivatives Association (ISDA)
Jacobson, T.
, 120
Jarrow, R.
, 51
Jokipii, T.
, 4
Kang, H., 175
Kashyap, A. K., 170, 182
Kattai, R., 45
Keller, C., 115
Key risk indicators (KRIs), 85
database, 97–100
Kindleberger, C., 154
Klingebiel, D., 4, 120
KMV model, 47–51
Köhler, M., 93
KRIs. See Key risk indicators (KRIs)
Kroszner, R. S., 4
Laeven, L., 4, 120
Landerretche, O., 161
Lang, M., 4, 16
LCR. See Liquidity coverage ratio (LCR)
Leverage ratio, 90
under basel III, 136–137
Levine, R., 22
LGD. See Loss Given Default (LGD)
Liability
structure of US bank, 3
Li, K.-F., 175
Lindé, J., 120
Liquidity
gap, 62
measurement, 15–19
ratio
under basel III, 137–139
defined, 16
Liquidity coverage ratio (LCR), 137–138
Liquidity risk
forms of liquidity regulations, 84
funding, 80
manage, 83–84
and solvency risk, 81
sources of liquidity gap, 80
and net present value of assets and liabilities, 80–81
systemic liquidity risks, 81–82
variants of liquidity ratio, 82–83
Local banks, 22–23
Loss Given Default (LGD), 52–55
Macaulay Duration, 66
Macroeconomic environment, 10
Macroeconomic models of credit risk, 44–47
Macroprudential approach, 167–169
Macroprudential policies, 163–164
in Euro area, 172–174
Macroprudential regulation, 150–152
complementary roles of, 166
defined, 149–150
drawbacks of, 165
EU banking union merging, 174–175
overlap, 166
tools, 154–159
types of data for, 152–154
Macro stress-testing models, 161
Market-based data, 153–154
Market-based financial system, 11
Market-oriented approach, 129
Meenen, L., 140
Mendelowitz, A., 159
Merton, R., 40, 48
Microprudential approach, 167–169
Microprudential regulation, 145
complementary roles of, 166
EU banking union merging, 174–175
instruments of, 146
overlap, 166
pitfall of, 146–149
Minsky, H. M., 154
Mishkin, F., 120
Monetary policy, 122–124
transmission mechanism of, 124–128
Money, defined, 123
Monnin, P., 4
Monte Carlo simulations, 44
Morris, S, 80
Mortgage-backed assets, 23
Narayanan, P., 42
Narrow money, defined, 124
NBFIs. See Non-bank financial institutions (NBFIs)
Net Stable Funding Ratio (NSFR), 16, 138–139
Neural networks, 208
Noguera, G., 120
Non-balance sheet strategies, for interest rate risk management, 78
Non-bank financial institutions (NBFIs), 129–130
Non-capital measures, 13–14
Non-core Tier 1 Capital, 135
Non-deposit funding, 21–22
Non-financial firm, 1–2
Non-fund-based balance sheet items, 117
Non-fund-based lending, 30
Non-interest income, 21
Northern Rock case study, 189–201
NSFR. See Net Stable Funding Ratio (NSFR)
Off-balance sheet, 31
activities, 23
Ongena, S., 161
Operating leverage, 2
Operational risks, 9, 85–86
Panel data models, 208
Peck, M., 42
Perotti, E. C., 140
von Peter, G., 121
Peydrò, J. L., 161
Pierret, D., 92
Political risk, 9, 87
Praet, P., 181
Prescriptive approach, 129
Profitability ratios, 95
Prompt Corrective Action, 182
Quantitative metrics, 6
Rajan, R., 4, 170
Rajan, R. G., 81
RAM. See Risk Assessment Matrix (RAM)
Ratings-inherent conflict of objectives among tripartite, 208–209
Ratings of customers, 205–208
Ratnovski, L., 140
Reduced form models of credit risk, 51
Regulation of banks, 129–130
Regulatory bodies, 24
Regulatory environment, 10
Reis, R., 4
Repricing analysis, 60
Repricing risk, 60
Retail-oriented banks, 21
Retana, M., 92
Risk
banking stability map, 102–103
based capital, 6
country, 86–87
credit, 19–20
currency, 84–85
defined, 5–6
effective management, 8–9
environmental, 9
equity, 86
financial, 9
financial stability risk map, 101–102
gap, 60
indicators, 95–96
internal and external sources of, 26–27
metrics, 6–7
mitigation policies initiated by banks, 8
operational, 9, 85–86
political, 9, 87
repricing, 60
solvency, 81
systemic, 159–160
weighted assets, 139–140
yield curve, 59
Risk Assessment Matrix (RAM), 7
example of, 9
Robust economy, 120
Rose, A., 177
Rosenberg, C., 115
Roszbach, K., 120
Roubini, N., 115
Roulet, C., 92
Saporta, V., 4
Schmidt, P. G., 16
Schoenmaker, D., 92, 175, 176, 177
Scholes, M., 48
Seal, K., 145
Securitisation, 33
Sensitivities factor, 6
Sensitivity analysis, 45
Setser, B., 115
Shadow banking system, 183
Shapiro, A., 86
Shin, H. S., 80
Shocks, defined, 47
SIFIs. See Systemically Important Financial Institutions (SIFIs)
Solvency risk, 81
Sound bank capital, for regulation, 92–93
Sound banking system, 13
Sources of Income, to Bank, 20
SRB. See Systemic risk buffer (SRB)
Statutory liquidity ratio, 84
Steffen, S., 92
Stein, J. C., 170, 182
Stiroh, K. J., 93
Straetmans, S., 161
Stress testing, 210–211
models, 46
Structural liquidity, 17
Structural models of credit risk, 47–51
Systematic approach, 1
to financial stability risk assessment in banks, 24
Systemically Important Financial Institutions (SIFIs), 150
Systemic liquidity risks, 81–82
Systemic risk, 159–160
indicators, 163
propagating avenues for, 162
sources of, 161
tools for identification of, 160–161
Systemic risk buffer (SRB), 23
System-wide approach, 166
Tabak, B. M., 22
Teubner, G., 129
Théoret, R., 15
Threshold values, defined, 4
Time dimension of systemic risk, 159
Tinbergen’s rule, 154–159
Transition matrix, 43
Transmission mechanism of monetary policy, 124–128
Tressel, T., 175
Tucker, P., 181
Turnbull, S., 51
Type I error, 209
Type II error, defined, 209
ULs. See Unexpected losses (ULs)
Unexpected losses (ULs), 209
Univariate analysis, 45
Valdés, R., 161
Valencia, F., 4
Value at Risk (VaR), 6
Van Greuning, H., 26
VaR. See Value at Risk (VaR)
Variable interest rate gap, 61
Vazquez, F., 17
Vestergaard, J., 92
Vlahu, R., 140
Volatility, defined, 6
Weighted least squares, 208
Wieladek, T., 177
Wolf, M., 1
Wong, T. C., 175
Wyplosz, C., 181
Yellen, J. L., 145
Yield curve risk, 59
ZETA score, 42
Zhang, Y., 175
Zhou, C., 148
Kang, H.
, 175
Kashyap, A. K.
, 170, 182
Kattai, R.
, 45
Keller, C.
, 115
Key risk indicators (KRIs)
, 85
database
, 97–100
Kindleberger, C.
, 154
Klingebiel, D.
, 4, 120
KMV model
, 47–51
Köhler, M.
, 93
KRIs. See Key risk indicators (KRIs)
Kroszner, R. S.
, 4
Laeven, L.
, 4, 120
Landerretche, O.
, 161
Lang, M.
, 4, 16
LCR. See Liquidity coverage ratio (LCR)
Leverage ratio
, 90
under basel III
, 136–137
Levine, R.
, 22
LGD. See Loss Given Default (LGD)
Liability
structure of US bank
, 3
Li, K.-F.
, 175
Lindé, J.
, 120
Liquidity
gap
, 62
measurement
, 15–19
ratio
under basel III
, 137–139
defined
, 16
Liquidity coverage ratio (LCR)
, 137–138
Liquidity risk
forms of liquidity regulations
, 84
funding
, 80
manage
, 83–84
and solvency risk
, 81
sources of liquidity gap
, 80
and net present value of assets and liabilities
, 80–81
systemic liquidity risks
, 81–82
variants of liquidity ratio
, 82–83
Local banks
, 22–23
Loss Given Default (LGD)
, 52–55
Macaulay Duration, 66
Macroeconomic environment, 10
Macroeconomic models of credit risk, 44–47
Macroprudential approach, 167–169
Macroprudential policies, 163–164
in Euro area, 172–174
Macroprudential regulation, 150–152
complementary roles of, 166
defined, 149–150
drawbacks of, 165
EU banking union merging, 174–175
overlap, 166
tools, 154–159
types of data for, 152–154
Macro stress-testing models, 161
Market-based data, 153–154
Market-based financial system, 11
Market-oriented approach, 129
Meenen, L., 140
Mendelowitz, A., 159
Merton, R., 40, 48
Microprudential approach, 167–169
Microprudential regulation, 145
complementary roles of, 166
EU banking union merging, 174–175
instruments of, 146
overlap, 166
pitfall of, 146–149
Minsky, H. M., 154
Mishkin, F., 120
Monetary policy, 122–124
transmission mechanism of, 124–128
Money, defined, 123
Monnin, P., 4
Monte Carlo simulations, 44
Morris, S, 80
Mortgage-backed assets, 23
Narayanan, P., 42
Narrow money, defined, 124
NBFIs. See Non-bank financial institutions (NBFIs)
Net Stable Funding Ratio (NSFR), 16, 138–139
Neural networks, 208
Noguera, G., 120
Non-balance sheet strategies, for interest rate risk management, 78
Non-bank financial institutions (NBFIs), 129–130
Non-capital measures, 13–14
Non-core Tier 1 Capital, 135
Non-deposit funding, 21–22
Non-financial firm, 1–2
Non-fund-based balance sheet items, 117
Non-fund-based lending, 30
Non-interest income, 21
Northern Rock case study, 189–201
NSFR. See Net Stable Funding Ratio (NSFR)
Off-balance sheet, 31
activities, 23
Ongena, S., 161
Operating leverage, 2
Operational risks, 9, 85–86
Panel data models, 208
Peck, M., 42
Perotti, E. C., 140
von Peter, G., 121
Peydrò, J. L., 161
Pierret, D., 92
Political risk, 9, 87
Praet, P., 181
Prescriptive approach, 129
Profitability ratios, 95
Prompt Corrective Action, 182
Quantitative metrics, 6
Rajan, R., 4, 170
Rajan, R. G., 81
RAM. See Risk Assessment Matrix (RAM)
Ratings-inherent conflict of objectives among tripartite, 208–209
Ratings of customers, 205–208
Ratnovski, L., 140
Reduced form models of credit risk, 51
Regulation of banks, 129–130
Regulatory bodies, 24
Regulatory environment, 10
Reis, R., 4
Repricing analysis, 60
Repricing risk, 60
Retail-oriented banks, 21
Retana, M., 92
Risk
banking stability map, 102–103
based capital, 6
country, 86–87
credit, 19–20
currency, 84–85
defined, 5–6
effective management, 8–9
environmental, 9
equity, 86
financial, 9
financial stability risk map, 101–102
gap, 60
indicators, 95–96
internal and external sources of, 26–27
metrics, 6–7
mitigation policies initiated by banks, 8
operational, 9, 85–86
political, 9, 87
repricing, 60
solvency, 81
systemic, 159–160
weighted assets, 139–140
yield curve, 59
Risk Assessment Matrix (RAM), 7
example of, 9
Robust economy, 120
Rose, A., 177
Rosenberg, C., 115
Roszbach, K., 120
Roubini, N., 115
Roulet, C., 92
Saporta, V., 4
Schmidt, P. G., 16
Schoenmaker, D., 92, 175, 176, 177
Scholes, M., 48
Seal, K., 145
Securitisation, 33
Sensitivities factor, 6
Sensitivity analysis, 45
Setser, B., 115
Shadow banking system, 183
Shapiro, A., 86
Shin, H. S., 80
Shocks, defined, 47
SIFIs. See Systemically Important Financial Institutions (SIFIs)
Solvency risk, 81
Sound bank capital, for regulation, 92–93
Sound banking system, 13
Sources of Income, to Bank, 20
SRB. See Systemic risk buffer (SRB)
Statutory liquidity ratio, 84
Steffen, S., 92
Stein, J. C., 170, 182
Stiroh, K. J., 93
Straetmans, S., 161
Stress testing, 210–211
models, 46
Structural liquidity, 17
Structural models of credit risk, 47–51
Systematic approach, 1
to financial stability risk assessment in banks, 24
Systemically Important Financial Institutions (SIFIs), 150
Systemic liquidity risks, 81–82
Systemic risk, 159–160
indicators, 163
propagating avenues for, 162
sources of, 161
tools for identification of, 160–161
Systemic risk buffer (SRB), 23
System-wide approach, 166
Tabak, B. M., 22
Teubner, G., 129
Théoret, R., 15
Threshold values, defined, 4
Time dimension of systemic risk, 159
Tinbergen’s rule, 154–159
Transition matrix, 43
Transmission mechanism of monetary policy, 124–128
Tressel, T., 175
Tucker, P., 181
Turnbull, S., 51
Type I error, 209
Type II error, defined, 209
ULs. See Unexpected losses (ULs)
Unexpected losses (ULs), 209
Univariate analysis, 45
Valdés, R., 161
Valencia, F., 4
Value at Risk (VaR), 6
Van Greuning, H., 26
VaR. See Value at Risk (VaR)
Variable interest rate gap, 61
Vazquez, F., 17
Vestergaard, J., 92
Vlahu, R., 140
Volatility, defined, 6
Weighted least squares, 208
Wieladek, T., 177
Wolf, M., 1
Wong, T. C., 175
Wyplosz, C., 181
Yellen, J. L., 145
Yield curve risk, 59
ZETA score, 42
Zhang, Y., 175
Zhou, C., 148
Macaulay Duration
, 66
Macroeconomic environment
, 10
Macroeconomic models of credit risk
, 44–47
Macroprudential approach
, 167–169
Macroprudential policies
, 163–164
in Euro area
, 172–174
Macroprudential regulation
, 150–152
complementary roles of
, 166
defined
, 149–150
drawbacks of
, 165
EU banking union merging
, 174–175
overlap
, 166
tools
, 154–159
types of data for
, 152–154
Macro stress-testing models
, 161
Market-based data
, 153–154
Market-based financial system
, 11
Market-oriented approach
, 129
Meenen, L.
, 140
Mendelowitz, A.
, 159
Merton, R.
, 40, 48
Microprudential approach
, 167–169
Microprudential regulation
, 145
complementary roles of
, 166
EU banking union merging
, 174–175
instruments of
, 146
overlap
, 166
pitfall of
, 146–149
Minsky, H. M.
, 154
Mishkin, F.
, 120
Monetary policy
, 122–124
transmission mechanism of
, 124–128
Money, defined
, 123
Monnin, P.
, 4
Monte Carlo simulations
, 44
Morris, S
, 80
Mortgage-backed assets
, 23
Narayanan, P.
, 42
Narrow money, defined
, 124
NBFIs. See Non-bank financial institutions (NBFIs)
Net Stable Funding Ratio (NSFR)
, 16, 138–139
Neural networks
, 208
Noguera, G.
, 120
Non-balance sheet strategies, for interest rate risk management
, 78
Non-bank financial institutions (NBFIs)
, 129–130
Non-capital measures
, 13–14
Non-core Tier 1 Capital
, 135
Non-deposit funding
, 21–22
Non-financial firm
, 1–2
Non-fund-based balance sheet items
, 117
Non-fund-based lending
, 30
Non-interest income
, 21
Northern Rock case study
, 189–201
NSFR. See Net Stable Funding Ratio (NSFR)
Off-balance sheet, 31
activities, 23
Ongena, S., 161
Operating leverage, 2
Operational risks, 9, 85–86
Panel data models, 208
Peck, M., 42
Perotti, E. C., 140
von Peter, G., 121
Peydrò, J. L., 161
Pierret, D., 92
Political risk, 9, 87
Praet, P., 181
Prescriptive approach, 129
Profitability ratios, 95
Prompt Corrective Action, 182
Quantitative metrics, 6
Rajan, R., 4, 170
Rajan, R. G., 81
RAM. See Risk Assessment Matrix (RAM)
Ratings-inherent conflict of objectives among tripartite, 208–209
Ratings of customers, 205–208
Ratnovski, L., 140
Reduced form models of credit risk, 51
Regulation of banks, 129–130
Regulatory bodies, 24
Regulatory environment, 10
Reis, R., 4
Repricing analysis, 60
Repricing risk, 60
Retail-oriented banks, 21
Retana, M., 92
Risk
banking stability map, 102–103
based capital, 6
country, 86–87
credit, 19–20
currency, 84–85
defined, 5–6
effective management, 8–9
environmental, 9
equity, 86
financial, 9
financial stability risk map, 101–102
gap, 60
indicators, 95–96
internal and external sources of, 26–27
metrics, 6–7
mitigation policies initiated by banks, 8
operational, 9, 85–86
political, 9, 87
repricing, 60
solvency, 81
systemic, 159–160
weighted assets, 139–140
yield curve, 59
Risk Assessment Matrix (RAM), 7
example of, 9
Robust economy, 120
Rose, A., 177
Rosenberg, C., 115
Roszbach, K., 120
Roubini, N., 115
Roulet, C., 92
Saporta, V., 4
Schmidt, P. G., 16
Schoenmaker, D., 92, 175, 176, 177
Scholes, M., 48
Seal, K., 145
Securitisation, 33
Sensitivities factor, 6
Sensitivity analysis, 45
Setser, B., 115
Shadow banking system, 183
Shapiro, A., 86
Shin, H. S., 80
Shocks, defined, 47
SIFIs. See Systemically Important Financial Institutions (SIFIs)
Solvency risk, 81
Sound bank capital, for regulation, 92–93
Sound banking system, 13
Sources of Income, to Bank, 20
SRB. See Systemic risk buffer (SRB)
Statutory liquidity ratio, 84
Steffen, S., 92
Stein, J. C., 170, 182
Stiroh, K. J., 93
Straetmans, S., 161
Stress testing, 210–211
models, 46
Structural liquidity, 17
Structural models of credit risk, 47–51
Systematic approach, 1
to financial stability risk assessment in banks, 24
Systemically Important Financial Institutions (SIFIs), 150
Systemic liquidity risks, 81–82
Systemic risk, 159–160
indicators, 163
propagating avenues for, 162
sources of, 161
tools for identification of, 160–161
Systemic risk buffer (SRB), 23
System-wide approach, 166
Tabak, B. M., 22
Teubner, G., 129
Théoret, R., 15
Threshold values, defined, 4
Time dimension of systemic risk, 159
Tinbergen’s rule, 154–159
Transition matrix, 43
Transmission mechanism of monetary policy, 124–128
Tressel, T., 175
Tucker, P., 181
Turnbull, S., 51
Type I error, 209
Type II error, defined, 209
ULs. See Unexpected losses (ULs)
Unexpected losses (ULs), 209
Univariate analysis, 45
Valdés, R., 161
Valencia, F., 4
Value at Risk (VaR), 6
Van Greuning, H., 26
VaR. See Value at Risk (VaR)
Variable interest rate gap, 61
Vazquez, F., 17
Vestergaard, J., 92
Vlahu, R., 140
Volatility, defined, 6
Weighted least squares, 208
Wieladek, T., 177
Wolf, M., 1
Wong, T. C., 175
Wyplosz, C., 181
Yellen, J. L., 145
Yield curve risk, 59
ZETA score, 42
Zhang, Y., 175
Zhou, C., 148
Off-balance sheet
, 31
activities
, 23
Ongena, S.
, 161
Operating leverage
, 2
Operational risks
, 9, 85–86
Panel data models
, 208
Peck, M.
, 42
Perotti, E. C.
, 140
von Peter, G.
, 121
Peydrò, J. L.
, 161
Pierret, D.
, 92
Political risk
, 9, 87
Praet, P.
, 181
Prescriptive approach
, 129
Profitability ratios
, 95
Prompt Corrective Action
, 182
Quantitative metrics, 6
Rajan, R., 4, 170
Rajan, R. G., 81
RAM. See Risk Assessment Matrix (RAM)
Ratings-inherent conflict of objectives among tripartite, 208–209
Ratings of customers, 205–208
Ratnovski, L., 140
Reduced form models of credit risk, 51
Regulation of banks, 129–130
Regulatory bodies, 24
Regulatory environment, 10
Reis, R., 4
Repricing analysis, 60
Repricing risk, 60
Retail-oriented banks, 21
Retana, M., 92
Risk
banking stability map, 102–103
based capital, 6
country, 86–87
credit, 19–20
currency, 84–85
defined, 5–6
effective management, 8–9
environmental, 9
equity, 86
financial, 9
financial stability risk map, 101–102
gap, 60
indicators, 95–96
internal and external sources of, 26–27
metrics, 6–7
mitigation policies initiated by banks, 8
operational, 9, 85–86
political, 9, 87
repricing, 60
solvency, 81
systemic, 159–160
weighted assets, 139–140
yield curve, 59
Risk Assessment Matrix (RAM), 7
example of, 9
Robust economy, 120
Rose, A., 177
Rosenberg, C., 115
Roszbach, K., 120
Roubini, N., 115
Roulet, C., 92
Saporta, V., 4
Schmidt, P. G., 16
Schoenmaker, D., 92, 175, 176, 177
Scholes, M., 48
Seal, K., 145
Securitisation, 33
Sensitivities factor, 6
Sensitivity analysis, 45
Setser, B., 115
Shadow banking system, 183
Shapiro, A., 86
Shin, H. S., 80
Shocks, defined, 47
SIFIs. See Systemically Important Financial Institutions (SIFIs)
Solvency risk, 81
Sound bank capital, for regulation, 92–93
Sound banking system, 13
Sources of Income, to Bank, 20
SRB. See Systemic risk buffer (SRB)
Statutory liquidity ratio, 84
Steffen, S., 92
Stein, J. C., 170, 182
Stiroh, K. J., 93
Straetmans, S., 161
Stress testing, 210–211
models, 46
Structural liquidity, 17
Structural models of credit risk, 47–51
Systematic approach, 1
to financial stability risk assessment in banks, 24
Systemically Important Financial Institutions (SIFIs), 150
Systemic liquidity risks, 81–82
Systemic risk, 159–160
indicators, 163
propagating avenues for, 162
sources of, 161
tools for identification of, 160–161
Systemic risk buffer (SRB), 23
System-wide approach, 166
Tabak, B. M., 22
Teubner, G., 129
Théoret, R., 15
Threshold values, defined, 4
Time dimension of systemic risk, 159
Tinbergen’s rule, 154–159
Transition matrix, 43
Transmission mechanism of monetary policy, 124–128
Tressel, T., 175
Tucker, P., 181
Turnbull, S., 51
Type I error, 209
Type II error, defined, 209
ULs. See Unexpected losses (ULs)
Unexpected losses (ULs), 209
Univariate analysis, 45
Valdés, R., 161
Valencia, F., 4
Value at Risk (VaR), 6
Van Greuning, H., 26
VaR. See Value at Risk (VaR)
Variable interest rate gap, 61
Vazquez, F., 17
Vestergaard, J., 92
Vlahu, R., 140
Volatility, defined, 6
Weighted least squares, 208
Wieladek, T., 177
Wolf, M., 1
Wong, T. C., 175
Wyplosz, C., 181
Yellen, J. L., 145
Yield curve risk, 59
ZETA score, 42
Zhang, Y., 175
Zhou, C., 148
Quantitative metrics
, 6
Rajan, R.
, 4, 170
Rajan, R. G.
, 81
RAM. See Risk Assessment Matrix (RAM)
Ratings-inherent conflict of objectives among tripartite
, 208–209
Ratings of customers
, 205–208
Ratnovski, L.
, 140
Reduced form models of credit risk
, 51
Regulation of banks
, 129–130
Regulatory bodies
, 24
Regulatory environment
, 10
Reis, R.
, 4
Repricing analysis
, 60
Repricing risk
, 60
Retail-oriented banks
, 21
Retana, M.
, 92
Risk
banking stability map
, 102–103
based capital
, 6
country
, 86–87
credit
, 19–20
currency
, 84–85
defined
, 5–6
effective management
, 8–9
environmental
, 9
equity
, 86
financial
, 9
financial stability risk map
, 101–102
gap
, 60
indicators
, 95–96
internal and external sources of
, 26–27
metrics
, 6–7
mitigation policies initiated by banks
, 8
operational
, 9, 85–86
political
, 9, 87
repricing
, 60
solvency
, 81
systemic
, 159–160
weighted assets
, 139–140
yield curve
, 59
Risk Assessment Matrix (RAM)
, 7
example of
, 9
Robust economy
, 120
Rose, A.
, 177
Rosenberg, C.
, 115
Roszbach, K.
, 120
Roubini, N.
, 115
Roulet, C.
, 92
Saporta, V., 4
Schmidt, P. G., 16
Schoenmaker, D., 92, 175, 176, 177
Scholes, M., 48
Seal, K., 145
Securitisation, 33
Sensitivities factor, 6
Sensitivity analysis, 45
Setser, B., 115
Shadow banking system, 183
Shapiro, A., 86
Shin, H. S., 80
Shocks, defined, 47
SIFIs. See Systemically Important Financial Institutions (SIFIs)
Solvency risk, 81
Sound bank capital, for regulation, 92–93
Sound banking system, 13
Sources of Income, to Bank, 20
SRB. See Systemic risk buffer (SRB)
Statutory liquidity ratio, 84
Steffen, S., 92
Stein, J. C., 170, 182
Stiroh, K. J., 93
Straetmans, S., 161
Stress testing, 210–211
models, 46
Structural liquidity, 17
Structural models of credit risk, 47–51
Systematic approach, 1
to financial stability risk assessment in banks, 24
Systemically Important Financial Institutions (SIFIs), 150
Systemic liquidity risks, 81–82
Systemic risk, 159–160
indicators, 163
propagating avenues for, 162
sources of, 161
tools for identification of, 160–161
Systemic risk buffer (SRB), 23
System-wide approach, 166
Tabak, B. M., 22
Teubner, G., 129
Théoret, R., 15
Threshold values, defined, 4
Time dimension of systemic risk, 159
Tinbergen’s rule, 154–159
Transition matrix, 43
Transmission mechanism of monetary policy, 124–128
Tressel, T., 175
Tucker, P., 181
Turnbull, S., 51
Type I error, 209
Type II error, defined, 209
ULs. See Unexpected losses (ULs)
Unexpected losses (ULs), 209
Univariate analysis, 45
Valdés, R., 161
Valencia, F., 4
Value at Risk (VaR), 6
Van Greuning, H., 26
VaR. See Value at Risk (VaR)
Variable interest rate gap, 61
Vazquez, F., 17
Vestergaard, J., 92
Vlahu, R., 140
Volatility, defined, 6
Weighted least squares, 208
Wieladek, T., 177
Wolf, M., 1
Wong, T. C., 175
Wyplosz, C., 181
Yellen, J. L., 145
Yield curve risk, 59
ZETA score, 42
Zhang, Y., 175
Zhou, C., 148
Saporta, V.
, 4
Schmidt, P. G.
, 16
Schoenmaker, D.
, 92, 175, 176, 177
Scholes, M.
, 48
Seal, K.
, 145
Securitisation
, 33
Sensitivities factor
, 6
Sensitivity analysis
, 45
Setser, B.
, 115
Shadow banking system
, 183
Shapiro, A.
, 86
Shin, H. S.
, 80
Shocks, defined
, 47
SIFIs. See Systemically Important Financial Institutions (SIFIs)
Solvency risk
, 81
Sound bank capital, for regulation
, 92–93
Sound banking system
, 13
Sources of Income, to Bank
, 20
SRB. See Systemic risk buffer (SRB)
Statutory liquidity ratio
, 84
Steffen, S.
, 92
Stein, J. C.
, 170, 182
Stiroh, K. J.
, 93
Straetmans, S.
, 161
Stress testing
, 210–211
models
, 46
Structural liquidity
, 17
Structural models of credit risk
, 47–51
Systematic approach
, 1
to financial stability risk assessment in banks
, 24
Systemically Important Financial Institutions (SIFIs)
, 150
Systemic liquidity risks
, 81–82
Systemic risk
, 159–160
indicators
, 163
propagating avenues for
, 162
sources of
, 161
tools for identification of
, 160–161
Systemic risk buffer (SRB)
, 23
System-wide approach
, 166
Tabak, B. M.
, 22
Teubner, G.
, 129
Théoret, R.
, 15
Threshold values, defined
, 4
Time dimension of systemic risk
, 159
Tinbergen’s rule
, 154–159
Transition matrix
, 43
Transmission mechanism of monetary policy
, 124–128
Tressel, T.
, 175
Tucker, P.
, 181
Turnbull, S.
, 51
Type I error
, 209
Type II error, defined
, 209
ULs. See Unexpected losses (ULs)
Unexpected losses (ULs), 209
Univariate analysis, 45
Valdés, R., 161
Valencia, F., 4
Value at Risk (VaR), 6
Van Greuning, H., 26
VaR. See Value at Risk (VaR)
Variable interest rate gap, 61
Vazquez, F., 17
Vestergaard, J., 92
Vlahu, R., 140
Volatility, defined, 6
Weighted least squares, 208
Wieladek, T., 177
Wolf, M., 1
Wong, T. C., 175
Wyplosz, C., 181
Yellen, J. L., 145
Yield curve risk, 59
ZETA score, 42
Zhang, Y., 175
Zhou, C., 148
ULs. See Unexpected losses (ULs)
Unexpected losses (ULs)
, 209
Univariate analysis
, 45
Valdés, R.
, 161
Valencia, F.
, 4
Value at Risk (VaR)
, 6
Van Greuning, H.
, 26
VaR. See Value at Risk (VaR)
Variable interest rate gap
, 61
Vazquez, F.
, 17
Vestergaard, J.
, 92
Vlahu, R.
, 140
Volatility, defined
, 6
Weighted least squares, 208
Wieladek, T., 177
Wolf, M., 1
Wong, T. C., 175
Wyplosz, C., 181
Yellen, J. L., 145
Yield curve risk, 59
ZETA score, 42
Zhang, Y., 175
Zhou, C., 148
Weighted least squares
, 208
Wieladek, T.
, 177
Wolf, M.
, 1
Wong, T. C.
, 175
Wyplosz, C.
, 181
Yellen, J. L.
, 145
Yield curve risk
, 59
ZETA score, 42
Zhang, Y., 175
Zhou, C., 148
ZETA score
, 42
Zhang, Y.
, 175
Zhou, C.
, 148
- Prelims
- Chapter 1 Banks, Risks and Risk Management
- Chapter 2 Banking Sector and Financial Stability
- Chapter 3 A Framework for Financial Stability Risk Assessment in Banks
- Chapter 4 Banks, Macroeconomic States, Asset Prices, Household Sector and Monetary Policy
- Chapter 5 Basel III
- Chapter 6 Microprudential and Macroprudential Regulation
- Chapter 7 Banks and Policies
- Chapter 8 Differences between US and European Union under Different Financial Perspectives
- Chapter 9 Some Practical Issues in Credit Risk Modelling
- References
- Index