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Liquidity Risk, Credit Risk, Market Risk and Bank Capital
Company: International Journal of Managerial Finance
Company Url: Click here to open
Year Of Publication: 2011
Month Of Publication: February
Resource Link: Click here to open
Pages: 134-152
Download Count: 0
View Count: 1397
Comment Num: 0
Language: English
Source: article
Who Can Read: Free
Date: 2-7-2011
Publisher: Administrator
Summary
We investigate the relationship between liquidity and credit risk and employ our findings to estimate the Incremental Risk Charge (IRC), the new credit risk capital add-on introduced by the Basel Committee for banks’ trading book. We compare our IRC estimates with stressed market risk measures derived from a sample of corporate bond indices encompassing the recent financial crisis. This allows us to determine the extent to which trading book capital would change in stress conditions under newly proposed rules. e show that although the (incremental) credit risk in the trading book may be considerable, the capital needed to absorb market risk related losses in stressed scenarios can be more than 10 times larger.
(volume 7, number 2)
Author(s)
Varotto, Simone Sign in to follow this author
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