Measuring Integrated Market and Credit Risks in Bank Portfolios: An Application to a Set of Hypothetical Banks Operating in South Africa
George Washington University - Department of Finance
George Washington University
Liliana B. Schumacher
International Monetary Fund (IMF) - Asia and Pacific Department; George Washington University - Department of International Business
IMF Working Paper No. 00/212
The banking crises of the 1990s emphasize the need to model the connections between volatility and the potential losses faced by financial institutions due to correlated market and credit risks. We present a simulation model that explicitly links changes in the financial environment and the distribution of future bank capital ratios. This forward-looking quantitative risk assessment methodology allows banks and regulators to identify risks before they materialize and make appropriate adjustments to banks` portfolios. This model was applied to the study of the risk profile of the largest South African banks in the context of the Financial System Stability Assessment (FSSA) (1999).
Number of Pages in PDF File: 50
Keywords: VaR, market risk, credit risk
JEL Classification: G21, G33working papers series
Date posted: February 14, 2006
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