Credit risk

Sponsor's article > Reason for hope

One disappointing aspect of the Basel II deliberations has been the lack of any proposed change in the treatment of counterparty credit exposures. David Rowe argues that recent dialogue between the Basel Committee and industry representatives offers hope…

Counterparty credit concerns

Regulators are getting interested in derivatives counterparty credit risk. When Federal Reserve chairman Alan Greenspan noted in May that one dealer (and we understand this to be JP Morgan Chase) accounted for a third of the global dollar interest rate…

Unexpected recovery risk

For credit portfolio managers, the priority is to properly incorporate recovery rates into existingmodels. Here, Michael Pykhtin improves upon earlier approaches, allowing recovery rates todepend on the idiosyncratic part of a borrower's asset return, in…

Ultimate recoveries

Measuring recovery using the ultimate rate observed at emergence from bankruptcy may be conceptually desirable, but modelling it is difficult.

Ready and waiting

The Australian Prudential Regulation Authority is confident that the country's financial institutions are well placed for the implementation of Basel II, and expects the four largest banks to implement the advanced IRB approach.

A false sense of security

Credit portfolio models often assume that recovery rates are independent of default probabilities. Here, Jon Frye presents empirical evidence showing that such assumptions are wrong. Using US historical default data, he shows that not only are recovery…

Sponsor's article > The operational risk pyramid

The extremely heterogeneous character of operational risk often makes discussion of it appear fragmented and unstructured. David Rowe proposes one possible paradigm for organising our thinking on various aspects of this increasingly important topic.

Does CP3 get it right?

The Basel Committee on Banking Supervision's third consultative paper raises several complex issues, not least of which is: will it work in practice?

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