Научная статья на тему 'An evolving nature of credit risk regulations'

An evolving nature of credit risk regulations Текст научной статьи по специальности «Экономика и бизнес»

CC BY
67
9
i Надоели баннеры? Вы всегда можете отключить рекламу.
Журнал
European science
Область наук
Ключевые слова
КРЕДИТНЫЙ РИСК / CREDIT RISK / БАЗЕЛЬ / BASEL / КАПИТАЛ / CAPITAL / БАНК / BANK / ФИНАНСЫ / FINANCE

Аннотация научной статьи по экономике и бизнесу, автор научной работы — Fomina Linda

The article discusses how the evolving nature of Basel regulations affects the credit risks within the banking and finance industry. The changes in approaches of credit risk and minimal capital requirement calculation are analyzed.

i Надоели баннеры? Вы всегда можете отключить рекламу.
iНе можете найти то, что вам нужно? Попробуйте сервис подбора литературы.
i Надоели баннеры? Вы всегда можете отключить рекламу.

Текст научной работы на тему «An evolving nature of credit risk regulations»

Планирование строительства предприятий в составе промышленно-производственных кластеров должно осуществляться на основе среднесрочных и стратегических планов, разрабатываемых в соответствии со схемами развития экономических районов страны, схемами развития и размещения предприятий в составе ТОР, что позволит сократить площадь территории, занимаемой предприятиями, уменьшить протяженность инженерных сетей и транспортных коммуникаций, что дает возможность концентрировать объемы строительно-монтажных работ на основных объектах промышленно--производственного кластера [2].

Литература

1. Ахмедова З. А., Беляков С. И., Луняков М. А. и др. Сервейинг: организация, экспертиза, управление. Учебник в 3-х томах / под общ. ред.проф. П. Г. Грабового. М: «АСВ», «Просветитель», 2015.

2. Луняков М. А., Грабовый П. Г. Формирование многофакторной системы показателей для оценки инвестиционной привлекательности проектов многофункциональных комплексов недвижимости // Сб. материалов V международной научной конференции 4-6 октября 2012 г., г. Сочи. Изд-во МГСУ, 2013.

An evolving nature of credit risk regulations Fomina L. (Russian Federation) Эволюция нормативных актов о кредитном риске Фомина Л. Б. (Российская Федерация)

Фомина Линда Борисовна /Fomina Linda - студент, кафедра мировой экономики и международного бизнеса, факультет международных экономических отношений, Финансовый университет при Правительстве Российской Федерации, г. Москва

Abstract: the article discusses how the evolving nature of Basel regulations affects the credit risks within the banking and finance industry. The changes in approaches of credit risk and minimal capital requirement calculation are analyzed.

Аннотация: статья рассматривает, как развитие Базельских соглашений повлияло на кредитный риск в банковской и финансовой сферах. Рассматриваются изменения в способах расчета кредитного риска, а также минимальных требований капитала.

Keywords: credit risk, Basel, capital, bank, finance.

Ключевые слова: кредитный риск, Базель, капитал, банк, финансы.

It is well known that credit risk - the risk of loss following a change in factors driving the credit quality of an asset - is the most critical risk within the banking sector, that directly affects overall banking performance. Since banking business went through significant changes, so did credit risk regulations. So this part of work will be focused on the developing of Basel regulations, concerning credit within banking and finance industry. Basel I

In the 1980s due to the internationalisation of banking and risk of capital arbitrage it was decided to internationally standardise capital requirements. It was connected with the great range of risks faced by institutions that the capital should be sufficient for. That is what the 1988 Basel Accord was primary created for: to reach the guidelines which protected financial system, but allowed financial institutions to proper [1]. And although later banks became more important players in the capital markets and thus the influence of market risk

became more significant, it's the credit risk that was the reason the first The Basel Capital Accord worked: initially it covered only credit risk, which was the dominant risk class in banks in the 1980s.

For meeting acceptable capital adequacy requirements, Basel I defined two minimum standards: asset-to capital multiple and risk-based capital ratio.

More critical measure, focused on the credit risk, is risk-based capital ratio. A set of simple rules became the base of the regulatory capital calculation, defining the appropriate risk rates that should be applied to an asset or loan. The regulatory capital obtained as following:

Capital = 8% x Risk weight x Exposure

The required capital ratio thus was set at a minimum of 8%, with at least 4% being core capital and supplementary capital. The objective of this capital is to serve as a buffer against unexpected losses and protect financial markets and depositors. Risk-weights in this approach are assigned to four possible asset classes. Basically, the more risky positions of a bank are, the higher would be the risk-weighted assets and the more capital would be charged. So, according to [2] risk-based capital charges were also a rough attempt to create a penalty for riskier assets.

Early requirements of Basel I were insufficiently considered and addressed a very limited range of risks. Nevertheless, they were simple enough to agree on. Basel I served the banking system quite well until the advent of securitisation technology.

Basel II

After enormous changes in capital markets, credit risk charges appeared to become outdated and even able to promote unsound behaviour by some banks [2]. Therefore, a large programme was started in the last years of twentieth century in order to create more sensitive to credit risk capital rules than Basel I [1].

Basel II extended the risk calculation to include market and operational risks, so capital adequacy will be measured as follows:

(Total Capital)/(Credit risk + Market risk + Operational risk) = = Bank's Capital Ratio > 8%

As can be seen, the framework maintained the minimum capital requirement of 8% of risk-weighted assets, with 4% for Tier 1 and balanced Tier 2 [3]. The purpose of those 4% was to absorb unexpected losses, but the financial crisis clearly showed that this number is not sufficient and the expectations were not met.

The other change is about calculation of credit risk. Basel II provides banking institutions more approaches to assess credit risk, with direct impact on their capital adequacy ratios. Those approaches are varying in terms of complexity, but banks could choose one of them, depending to their risk profile, internal requirements and local or regional supervision authorities' requirements [4].

• Standardized approach

This is an extension of Basel I, however it uses external ratings for 11 risk categories with the new weights for banks and sovereigns (five categories) and for corporates (four categories). Banks can either assign a risk weight one notch below that of the sovereigns or to use an external credit assessment [2].

• Internal Rating-Based approach (the IBR)

The IBR is highly mathematical value-at-risk approach. Capital requirement based on the VaR calculated on a one-year time horizon and a 99.9% confidence level. Capital required is therefore the value at risk minus the expected loss, since usually expected losses are covered by the way a financial institution prices its products [5]. The weights are derived based on the banks' own risk measures. If using Foundation IBR, banks calculate their probability of default, but other VaR elements (the loss given default and exposure at default) are provided by the financial services authorities on base of the data from different banks. In Advanced IBR approach all VaR elements must be based upon internal estimates

(Anderson, 2007). The accuracy of those models clearly depends on correct assessment of the probability of default.

Overall, the more advanced approach a bank decides to use, the higher is responsibility (to determine the risk parameters) and implementation cost for the bank [6]. However, while banks with simple portfolios can follow standardized approach, more advanced banks are expected to apply IBR approach. In order to do so, the bank should meet a set of minimum requirements, have reliable internal rating system, and bank-developed rating system must be approved.

So after implementation of Basel II credit risk capital was calculated in a more sophisticated way than previously. However, according to Danila [4], it is still discussed whether the regulatory framework was actually improved with new methods that were applied to credit risk or it contributed to the financial crisis, as banks were allowed to use their own predictions and models to assess credit risks and set capital adequacy ratios.

Basel III

Unlike Basel I and Basel II, Basel III rules are mainly issued in response to the recent financial crisis. The application of Basel III framework from 2013 and gradually over the six-year period aims to make previous framework more effective and to straighten the international banking system's stability. Overall, three key elements of Basel III are higher capital ratios, better capital quality and stricter liquidity requirements.

Under Basel III, a bank's total capital consists of: Equity capital, additional Tier 1 capital and Tier 2 capital, thus there is no Tier 3 capital. New levels of capital requirements were expected to be sufficient to cover large amounts of losses and solve a problem of Basel II. The final structure of the regulatory capital is as follows:

Table 1: Structure of the regulatory capital

Capital Basel II (%) Basel III (%)

Common equity

Minimum 2 4.50

Stabilizing 0 2.50

Total required 2 7

Tier 1 capital

Minimum 4 6

Total required 8.50

Total capital

Minimum 8 8

Total required 10.50

As percentages have been increased, it can be clearly seen that the Basel III rules became much more demanding. It is also proved by the fact that definition of equity capital for regulatory purposes has been tightened.

It was agreed that a conservation buffer minimum of 2.5% to be covered by common equity. Aim of this buffer make it sure that banks maintain a capital to absorb losses during financial crises. Additionally, in Basel III was set a countercyclical buffer. The extent to which it is implemented in a particular country is left to the discretion of national authorities, but otherwise it is similar to the capital conservation buffer (Hull, 2012). This buffer is supposed to protect the cyclicality of bank earnings. It can be set between 0% and 2.5% of total risk-weighted assets and must be met with Tier 1 equity capital. It should be noted that the above recommendations will be fully implemented after transitional period on January 1, 2019 [7].

For the first time it was decided to establish liquidity ratios at international level. Liquidity coverage ratio is supposed to ensure that a financial institution has the necessary assets to overcome short-term liquidity disruptions. It is required that banks keep an amount of highly liquid assets (cash or treasury bonds), equal to or greater than their net cash over a

30-day period. The ratio came into effect in January 2015 with minimum requirement of 60%, which will rise to 100% to 2019 [8].

Net stable funding ratio is created to compare the amount of a firm's available stable funding with required stable funding in order to measure funding of the firm's asset base. The aim of this indicator is to encourage banks to fund their activities with more stable sources in order to mitigate the risk of future funding stress.

There is a lot of criticism of the framework, for instance for being too costly. Vousinas [7] notice, that there is a risk of reduction in the credit supply provided by banks, which can negatively affect the real sector of the economy. It is clear however that the broad application of Basel III rules can produce more stable banking system, implementing stricter capital adequacy ratios and thus ensuring liquidity in times of financial distress. Therefore, it's duty of authorities to monitor the financial and banking conditions and to intervene when needed so the regulatory rules are followed.

References

1. Murphy D. Understanding risk: the theory and practice of financial risk management. London: Chapman & Hall/CRC, 2008.

2. Jorion P. Financial risk manager handbook. Hoboken, N.J.: Wiley, 2009.

3. Crouhy M., Galai D. & Mark R. The essentials of risk management. (2nd ed.). New York: McGraw-Hill, 2013.

4. Danila O. Credit Risk Assessment under Basel Accords. Theoretical and Applied Economics, 2012. № 3 (568). C. 77-90.

5. Hull J. Risk management and financial institutions. (4th ed.). Hoboken, N.J.: Wiley, 2015.

6. Gestel T. & Baesens B. Credit risk management: basic concepts. New York: Oxford University Press, 2009.

7. Vousinas G. (2015). Supervision of financial institutions: The transition from Basel I to Basel III. A critical appraisal of the newly established regulatory framework. Journal of Financial Regulation and Compliance, 2015. № 23 (4). C. 383 - 402.

8. Basel Committee on Banking Supervision (BCBS). Review of the Credit Valuation Adjustment Risk Framework, 2015.

Causes of inflation in Kyrgyzstan Mamyralieva A. (Republic of Kyrgyzstan) Причины инфляции в Кыргызстане Мамыралиева А. Т. (Кыргызская Республика)

Мамыралиева Айнагул Тураматовна /Mamyralieva Ainagul - соискатель, кафедра финансов и кредита, экономико-юридический факультет, Жалал-Абадский государственный университет, г. Жалал-Абад, Кыргызская Республика

Аннотация: в данной статье анализируются современное состояние и динамика уровня инфляции в Кыргызстане за последние пять лет, рассматриваются причины появления инфляции, обосновывается неблагоприятное воздействие на экономику государства. Abstract: this article examines the current state and dynamics of inflation in Kyrgyzstan over the past five years, the reasons of occurrence of inflation, justified an adverse effect on the economy of the state.

Ключевые слова: инфляция, индекс потребительских цен, уровень инфляции, дефляция. Keywords: inflation, the consumer price index, inflation, deflation.

i Надоели баннеры? Вы всегда можете отключить рекламу.