Estimating Economic Capital on a Credit Portfolio: A Survey of Some New Methodologies

Abstract

The paper (in Italian) presents an approach, based on (Pykhtin 2004), to the measurement (and explanation) of the gap between regulatory capital and economic capital. The methodology proposed in the paper accounts for the effect of concentration risk on a credit portfolio, as mandated by the so-called Pillar 2 of the new Basel Accord on bank capital, and can be decomposed into two steps: the computation of a "calibrated" regulatory capital and the addition of two further adjustements (industry concentration adjustment and name concentration adjustment).

Through the application of the methodology to a mock portfolio, the paper shows how it can be used in practice, quantifying and explaining the different factors that create a gap between the regulatory capital requirements in Pillar 1 and the actual amount of economic capital required against credit risk.

Finally, the paper shows how the methodology proposed can help to spot some new types of regulatory arbitrages (on concentration risk, rather than on default risk).

Moving from the regulatory to the economic perspective can bring about both an increase and a decrease in capital. The methodology shown in the paper helps to explain why some banks expect the second Pillar in Basel 2 to reduce the amount of capital they have to keep to face credit risk.

Keywords: capitale economico, secondo pilastro, rischio di concentrazione

JEL Classification: G00