Forecasting required loan loss reserves

Article Abstract:

A methodology has been built up to analyze loan audit activity and allow institutions to set appropriate prices for loans despite constantly changing knowledge of credit losses. The methodology uses a combination of default history and loan audits to estimate the likelihood of default. The history of loan behaviour can be used for calculating loss rates and loan defaults, while loan portfolio audits can be employed for calculating loss rates with a given loan loss probability distribution, and where such knowledge is not available. Income smoothing is likely to result from this method of forecasting.

Methods, Finance, Asset-liability management (Banking), Asset liability management (Banking)

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Bank charter values and capital levels: an international comparison

Article Abstract:

The question of whether bank charter values incorporated a country-specific component was examined by using a market-based valuation measure called Tobin's Q. The country-specific components include market structure variables, deposit insurance, availability of discount window borrowings and forbearance policies. It was suggested that there two opposing factors on capital levels, the moral hazard and market rents effects. It was concluded that countries with strong country-specific components were those inclined to have the highest levels of capital.

Commercial Banking, Research, Commercial banks, Economic aspects, Bank capital

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