Cross-border loan portfolio diversification, capital requirements, and the European Banking Union

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dc.contributor Bank of Finland
dc.contributor Suomen Pankki
dc.contributor.author Jokivuolle, Esa
dc.contributor.author Virén, Matti
dc.date.accessioned 2019-05-29T09:27:45Z
dc.date.available 2019-05-29T09:27:45Z
dc.date.issued 2019
dc.identifier.uri https://helda.helsinki.fi/bof/handle/123456789/16151
dc.description.abstract We provide preliminary evidence of potential risk reduction benefits from banks’ loan portfolio diversification cross-border within the Euro area. Using aggregate data on banking sector cor-porate loan losses for each Euro area member-state, our estimates suggest that the static diversification benefit could be substantial. The minimum capital needed to withstand the max-imum annual loss from a hypothetical fully diversified Euro area bank loan portfolio over the period 2001-2017 would have been only 40 % of the total capital needed to withstand the maximum losses on a country by country basis. We also calibrate the country-specific loan loss distributions and the Euro area portfolio’s loss distribution to the Vasicek (2002) model, which underlies the Basel framework’s Internal Ratings Based Approach. We find that the im-plied asset correlation parameter of a median country portfolio is about twice as large as that of the fully diversified Euro area portfolio.
dc.format.extent 11
dc.language.iso ENG
dc.rights https://helda.helsinki.fi/bof/copyright
dc.title Cross-border loan portfolio diversification, capital requirements, and the European Banking Union
dc.type Paper
dc.identifier.urn URN:NBN:fi:bof-201905281211
dc.series.name BoF Economics Review
dc.series.year 2019
dc.series.number 3/2019
dc.series.sortingnumber 0003
dc.date.publication 28.5.2019
dc.subject.yso pankit
dc.subject.yso luotot
dc.subject.yso euroalue
bof-internal.includedInCRIS 1
dc.type.okm D4

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