Measuring Integrated Market and Credit Risks in Bank Portfolios: An Application to a Set of Hypothetical Banks Operation in South Africa

By Panagiotis Papapanagiotou, Theodore M. Barnhill, Liliana B Schumacher

December 1, 2000

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Panagiotis Papapanagiotou, Theodore M. Barnhill, and Liliana B Schumacher. Measuring Integrated Market and Credit Risks in Bank Portfolios: An Application to a Set of Hypothetical Banks Operation in South Africa, (USA: International Monetary Fund, 2000) accessed December 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The banking crises of the 1990s emphasize the need to model the connections between volatility and the potential losses faced by financial institutions due to correlated market and credit risks. We present a simulation model that explicitly links changes in the financial environment and the distribution of future bank capital ratios. This forward-looking quantitative risk assessment methodology allows banks and regulators to identify risks before they materialize and make appropriate adjustments to banks’ portfolios. This model was applied to the study of the risk profile of the largest South African banks in the context of the Financial System Stability Assessment (FSSA) (1999).

Subject: Banking, Credit, Credit risk, Financial institutions, Financial regulation and supervision, Loans, Market risk, Money, Mortgages

Keywords: Africa, Bank assets, Bank portfolio, Bank portfolio risk, Bank risk level, Business loan, Credit, Credit quality, Credit rating, Credit risk, Hypothetical bank, Loans, Market risk, Mortgages, Quality distribution, Risk level, Term structure, VaR, WP

Publication Details

Pages:

50
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2000/212
Stock No:

WPIEA2122000
ISBN:

9781451874884
ISSN:

1018-5941

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