Probability of default (PD)
Danske Bank RWA spat worries modelling experts
Danske Bank and its regulator were pitched into open conflict in mid-June, when the Danish Financial Supervisory Agency told the bank to hold more capital for corporate loans – an order Danske is contesting. It’s the latest example of supervisory…
CDSs, CVA and DVA – a structural approach
Counterparty risk is difficult to include systematically in credit default swap pricing. Reviving Merton’s structural approach – and generalising to higher dimensions – makes it tractable. By Alex Lipton and Ioana Savescu
Closing out DVA
The choice of a close-out convention applicable on the default of a derivatives counterparty can have a significant effect on the credit and debit valuation adjustments, as can the order of defaults. Jon Gregory and Ilya German examine this phenomenon in…
FSA forces UK banks to assume higher sovereign losses
Behind-the-scenes clampdown sets loss-given-default floor at 45% – and could make UK bonds less attractive
Turkish banks seek freedom as Basel II hits capital ratios
Turkey’s banks are well placed to absorb an increase in capital requirements when the country switches to the Basel II regime this month, but larger institutions are frustrated that the modelling approaches contained in the new rules remain out of bounds…
Q&A: Ryozo Himino on Basel’s RWA probe and the need for minimum standards
The Basel Committee’s newly formed standards implementation group is charged with monitoring how banks are adhering to the requirements of the Basel III accord. The chair of the group, Ryozo Himino, talks to Nick Sawyer about consistency with Basel…
Basel 2.5 meets the Sarkozy trade: new rules could hit bond demand
Regulators want banks to hold more capital against government bond positions, but the regime is being changed at a time when the industry is the main source of demand for big eurozone issuers such as Italy and Spain. In addition, banks fear modelling…
Basel III takes a bite out of aircraft and shipping finance
Aircraft and shipping firms are finding it harder to obtain bank loans – in part because of Basel III. Funds and other non-bank lenders are ready to take up some of the slack, but some companies may not be able to access this new source of cash. By…
Q&A: Ryozo Himino on Basel's RWA probe and the need for minimum standards
The Basel Committee is keeping an eye on Basel III implementation, led by its standards implementation group. Nick Sawyer talks to Ryozo Himino, chair of the group, about the monitoring of timelines, consistency with Basel minimums and the investigation…
Credible capital: regulators prepare to tackle RWA divergence
The credibility of bank capital has been called into question by the wildly differing risk-weighted asset (RWA) numbers produced by bank models – and the Basel Committee is preparing to launch an investigation. But RWA differences spring from multiple…
Counterparty risk capital and CVA
Basel III has incorporated credit valuation adjustment (CVA) in calculations of regulatory capital for counterparty credit risk (CCR). CVA appears via a completely new CVA capital charge and a downward adjustment of exposure-at-default. In this article,…
Concern over accuracy of RWAs grows
Risk-weighted assets (RWAs) play a crucial role in minimum bank capital requirements under the Basel framework. However, regulators are increasingly anxious about differences in the calculation of RWAs between firms. Just how much of a problem is it?…