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Systemic bank risk in Brazil: an assessment of correlated market, credit, sovereign and inter-bank risk in an environment with stochastic volatilities
Company: Deutsche Bundesbank
Year Of Publication: 2007
Month Of Publication: December
Pages: 76
Download Count: 11
View Count: 1551
Comment Num: 0
Language: English
Who Can Read: Free
Date: 4-25-2010
Publisher: Administrator
In this study we develop and demonstrate a powerful and flexible forward-looking portfolio
simulation methodology for assessing the correlated impacts of market risk, and private
sector, sovereign and inter-bank default risk on both individual banks (i.e. 28 of the largest
Brazilian banks) and groups of banks (i.e. the Brazilian banking system). The methodology
importantly accounts for bank asset and liability maturity and currency mismatches and loan
portfolio credit quality and sector and region concentrations. In a significant innovation,
financial and economic environment variables are modeled with stochastic volatilities and
correlations. We demonstrate the reliability of the models by comparing simulated and
historical credit transition probabilities, simulated and historical bank rates of return, and
simulated versus actual bank credit ratings. When omitting sovereign risk our analysis
indicates that none of the banks face significant default risk over a 1-year horizon
Souto, Marcos Reitti Sign in to follow this author
Barnhill, Theodore Jr. Sign in to follow this author
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