Silvio Tarca and Marek Rutkowski
This study aims to render a fundamental assessment of the Basel II internal ratings-based (IRB) approach by taking readings of the Australian banking sector since the…
Abstract
Purpose
This study aims to render a fundamental assessment of the Basel II internal ratings-based (IRB) approach by taking readings of the Australian banking sector since the implementation of Basel II and comparing them with signals from macroeconomic indicators, financial statistics and external credit ratings. The IRB approach to capital adequacy for credit risk, which implements an asymptotic single risk factor (ASRF) model, plays an important role in protecting the Australian banking sector against insolvency.
Design/methodology/approach
Realisations of the single systematic risk factor, interpreted as describing the prevailing state of the Australian economy, are recovered from the ASRF model and compared with macroeconomic indicators. Similarly, estimates of distance-to-default, reflecting the capacity of the Australian banking sector to absorb credit losses, are recovered from the ASRF model and compared with financial statistics and external credit ratings. With the implementation of Basel II preceding the time when the effect of the financial crisis of 2007-2009 was most acutely felt, the authors measure the impact of the crisis on the Australian banking sector.
Findings
Measurements from the ASRF model find general agreement with signals from macroeconomic indicators, financial statistics and external credit ratings. This leads to a favourable assessment of the ASRF model for the purposes of capital allocation, performance attribution and risk monitoring. The empirical analysis used in this paper reveals that the recent crisis imparted a mild stress on the Australian banking sector.
Research limitations/implications
Given the range of economic conditions, from mild contraction to moderate expansion, experienced in Australia since the implementation of Basel II, the authors cannot attest to the validity of the model specification of the IRB approach for its intended purpose of solvency assessment.
Originality/value
Access to internal bank data collected by the prudential regulator distinguishes this paper from other empirical studies on the IRB approach and financial crisis of 2007-2009. The authors are not the first to attempt to measure the effects of the recent crisis, but they believe that they are the first to do so using regulatory data.
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John B. Williamson and Stephanie A. Howling
Most countries around the world base their old‐age pension programs largely on the pay‐as‐you‐go defined benefit (PAYGO DB) model. However, due to a number of factors including…
Abstract
Most countries around the world base their old‐age pension programs largely on the pay‐as‐you‐go defined benefit (PAYGO DB) model. However, due to a number of factors including population aging, the maturing of these schemes, rapidly increasing old‐age pension costs, and the perceived need to become more competitive in international markets, many nations have become increasingly concerned about the present (or projected future) economic burden of paying for the pension benefits promised by these schemes. This concern has led policy makers to look for alternative models. One of the most innovative alternatives to emerge during the past ten years is the notional defined contribution (NDC) model. In this article we describe this model and discuss some of the implications of a shift to this model for women and low‐wage workers. We conclude that in the industrial nations women and low‐wage workers are likely to do less well with schemes based all or in part on the NDC model because such schemes are typically designed to be less redistributive (from higher to lower income groups) than the PAYGO DB schemes they will be replacing. However, in developing countries the reverse will often be true as the NDC schemes are likely to be replacing PAYGO DB schemes that tend to redistribute from low‐income groups to higher income groups. Relative to funded DC schemes a major advantage of the NDC model is that it does not subject individual pension benefits to the volatility of financial markets. This issue is relevant to workers in both developed and developing nations, but it is a particularly important consideration in developing nations.
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Cezary Galinski, Grzegorz Krysztofiak, Marek Miller, Pawel Ruchala, Marek Kalski, Mateusz Lis, Adam Dziubinski, Krzysztof Bogdanski, Lukasz Stefanek and Jaroslaw Hajduk
The purpose of this paper is to present the methodology and approach adapted to conduct a wind tunnel experiment on the inverted joined-wing airplane flying model together with…
Abstract
Purpose
The purpose of this paper is to present the methodology and approach adapted to conduct a wind tunnel experiment on the inverted joined-wing airplane flying model together with the results obtained.
Design/methodology/approach
General assumptions underlying the dual-use model design are presented in this paper. The model was supposed to be used for both wind tunnel tests and flight tests that significantly drive its size and internal structure. Wind tunnel tests results compared with the outcome of computational fluid dynamics (CFD) were used to assess airplane flying qualities before the maiden flight was performed.
Findings
Extensive data about the aerodynamic characteristics of the airplane were collected. Clean configurations in symmetric and asymmetric cases and also configurations with various control surface deflections were tested.
Practical implications
The data obtained experimentally made it possible to predict the performance and stability properties of the unconventional airplane and to draw conclusions on improvements in further designs of this configuration.
Originality/value
The airplane described in this paper differs from frequently analyzed joined-wing configurations, as it boasts a front lifting surface attached at the top of the fuselage, whereas the aft one is attached at the bottom. The testing technique involving the application of a dual-use model is also innovative.