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Retail Loans and Basel II: Using Portfolio Segmentation to Reduce Capital Requirements. ECRI Research Report No. 8, 20 August 2006

Kaltofen, Daniel. and Paul, Stephan. and Stein, Stefan. (2006) Retail Loans and Basel II: Using Portfolio Segmentation to Reduce Capital Requirements. ECRI Research Report No. 8, 20 August 2006. UNSPECIFIED.

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    Abstract

    The key concept underlying the Basel II framework for risk measurement and corresponding equity capital standards is that the existing regulations pertaining to credit risk will be individualised through reference to the internal ratings of banks. In accordance with the regulatory guidelines, Daniel Kaltofen, Stephan Paul and Stefan Stein develop an ‘optimised segmentation approach’ with regard to the credit default event and measure the implications for regulatory capital requirements. As regards methodology, they present an innovative technique and test it on a data set of approximately 413,000 motor vehicle loans. By classifying loans according to selective predictors of default, the authors find that banks can achieve significant savings in terms of ensuring a lower regulatory capital requirement. This provides banks with the opportunity to increase lending capacity. The technique overcomes the disadvantages of the more familiar standard methods used in today’s bank risk management and delivers more robust results.

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    Item Type: Other
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > economic and financial affairs > Single Market > capital, goods, services, workers
    EU policies and themes > Policies & related activities > economic and financial affairs > business/private economic activity
    Subjects for EU documents: UNSPECIFIED
    EU Series: UNSPECIFIED
    ["eprint_fieldname_eusries" not defined]: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > ECRI Research Reports
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 14 May 2009
    Page Range: p. 28
    Last Modified: 06 Apr 2012 12:57
    URI: http://aei.pitt.edu/id/eprint/9427

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