×

Integrated bank risk modeling: a bottom-up statistical framework. (English) Zbl 1317.91040

Summary: In the last few years, according to the evolution of financial markets and the enforcement of international supervisory requirements, an increasing interest has been devoted to risk integration. The original focus on individual risk estimation has been replaced by the growing prominence of top-down and bottom-up risk integration perspectives. Following this latter way, we bring together different approaches developed in the recent literature elaborating a general model to assess banking solvency in both the long-run (economic capital) as well as in the short period (liquidity mismatching). We consider banking capability to face credit, interest rate and liquidity risks associated to macro-economic shocks affecting both assets and liabilities. Following the perspective of commercial banks, we concentrate on information available in the risk management practice to propose an easy to implement statistical framework. We put in place this framework estimating its scenario generation parameters on Italian macro-economic time series from 1990 to 2009. Once applied to a stylized commercial bank, we compare the results of our approach to regulatory capital requirements. We emphasize the need for policy makers as well as risk managers, to take into account the entire balance sheet structure to assess banking solvency.

MSC:

91B30 Risk theory, insurance (MSC2010)
62P05 Applications of statistics to actuarial sciences and financial mathematics
PDF BibTeX XML Cite
Full Text: DOI

References:

[1] Aas, K.; Dimakos, X.; ∅ksendal, A., Risk capital aggregation, Risk Management, 9, 82-107, (2007)
[2] Acerbi, C.; Tasche, D., On the coherence of expected shortfall, Journal of Banking and Finance, 26, 7, 1487-1503, (2002)
[3] Alessandri, P.; Drehmann, M., An economic capital model integrating credit and interest rate risk in the banking book, Journal of Banking and Finance, 34, 4, 730-742, (2010)
[4] Amihud, Y., Illiquidity and stock returns: cross-section and time series effects, Journal of Financial Markets, 5, 31-56, (2002)
[5] Aslan, B.; Zech, G., Statistical energy as a tool for binning-free, multivariate goodness-of-fit tests, two-sample comparison and unfolding, Nuclear Instruments and Methods in Physics Research, 537, 626-636, (2005)
[6] Atkinson, A. C.; Riani, M.; Cerioli, A., Exploring multivariate data with the forward search, (2004), Springer-Verlag New York · Zbl 1049.62057
[7] Bellini, T., Detecting atypical observations in financial data: the forward search for elliptical copulas, Advances in Data Analysis and Classification, 4, 287-299, (2010) · Zbl 1284.62194
[8] Bellini, T., The forward search outlier detection in data envelopment analysis, European Journal of Operational Research, 216, 200-207, (2012) · Zbl 1237.90107
[9] Bellini, T.; Riani, M., Robust analysis of default intensity, Computational Statistics and Data Analysis, 56, 11, 3276-3285, (2012) · Zbl 1254.91635
[10] Breuer, T.; Jandacka, M.; Rheinberger, K.; Summer, M., Does adding up of economic capital for market and credit risk amount to conservative risk assessment?, Journal of Banking and Finance, 34, 703-712, (2010)
[11] Diebold, F.; Rudebusch, G.; Aruoba, B., The macroeconomy and the yield curve: a dynamic latent factor approach, Journal of Econometrics, 131, 309-338, (2006) · Zbl 1337.62356
[12] Dimakos, X.; Aas, K., Integrated risk modelling, Statistical Modelling, 4, 4, 265-277, (2004) · Zbl 1098.91071
[13] Drehmann, M.; Stringa, M.; Sorensen, S., The integrated impact of credit and interest rate risk on banks: a dynamic framework and stress testing application, Journal of Banking and Finance, 34, 713-729, (2010)
[14] Duffie, D.; Singleton, K. J., Credit risk pricing, measurement and management, (2003), Princeton University Press Princeton
[15] EBA, 2011. 2011 eu-wide stress test. Methodological Note.
[16] Gelman, A.; Hill, J., Data analysis using regression and multilevel/hierarchical models, (2007), Cambridge University Press Cambridge
[17] Grundke, P., Importance sampling for integrated market and credit portfolio models, European Journal of Operational Research, 194, 206-226, (2009) · Zbl 1158.91378
[18] Grundke, P., Top-down approaches for integrated risk management: how accurate are they?, European Journal of Operational Research, 203, 662-672, (2010) · Zbl 1177.91081
[19] Justel, A.; Pena, D.; Zamar, R., A multivariate Kolmogorov-Smirnov test of goodness of fit, Statistics and Probability Letters, 35, 251-259, (1997) · Zbl 0883.62054
[20] Kaplin, A., Levy, A., Qu, S., Wang, D., Wang, Y., Zhang, J., 2009. The Relationship between Default Risk and Interest Rates: An Empirical Study. Moody’s Analytics, Moody’s KMV Company.
[21] Kojadinovic, I.; Yan, J., Modeling multivariate distributions with continuous margins using the copula r package, Journal of Statistical Software, 34, 1-20, (2010)
[22] Kretzschmar, G.; McNeil, A.; Kirchner, A., Integrated models of capital adequacy - why banks are undercapitalised, Journal of Banking and Finance, 34, 2838-2850, (2010)
[23] Kuritzkes, A., Schuermann, T., Weiner, S., 2002. Risk Measurement, Risk Management and Capital Adequacy in Financial Conglomerates. Center for Financial Institutions Working Paper 03-02, Warthon School Center for Financial Institutions, University of Pennsylvania.
[24] Longerstaey, J.; Spencer, M., Riskmetrics technical document, (1996), J.P. Morgan and Reuters New York
[25] Mashal, R., Zeevi, A., 2002. Beyond Correlation: Extreme Co-Movements between Financial Assets. Working Paper, Columbia Graduate School of Business.
[26] McNeil, A.; Frey, R.; Embrechts, P., Quantitative risk management: concepts, techniques and tools, (2005), Princeton University Press Princeton · Zbl 1089.91037
[27] Rizzo, M. L.; Szekely, G. J., Disco analysis: a nonparametric extension of analysis of variance, Annals of Applied Statistics, 4, 1034-1055, (2010) · Zbl 1194.62054
[28] Rosenberg, J.; Schuermann, T., A general approach to integrated risk management with skewed, fat-tailed risks, Journal of Financial Economics, 79, 3, 569-614, (2006)
[29] Szekely, G.J., Rizzo, M.L., 2004. Testing for equal distributions in high dimension. InterStat, 5.
[30] Wilson, T., Portfolio credit risk (i), Risk, 10, 111-117, (1997)
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. It attempts to reflect the references listed in the original paper as accurately as possible without claiming the completeness or perfect precision of the matching.