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International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page A Guide to Choosing Absolute Bank Capital Requirements
Mark Carey
2002-726  (May 2002)

Abstract:  Resampling implementation of a stress-scenario approach to estimating portfolio default loss distributions is proposed as the basis for estimates of the appropriate absolute level of economic capital allocations for portfolio credit risk. Estimates are presented for stress scenarios of varying severity. Implications of use of different analysis time horizons are analyzed. Results for a numeraire portfolio are quite sensitive to such variations. Although the analysis is framed in terms of recent proposals to revise regulatory capital requirements for banks, the arguments and results are also relevant for bankers making capital structure decisions.

Full paper (73 KB PDF)

Keywords
risk management, credit risk, capital requirements, bank regulation

As Published Elsewhere
Forthcoming, Journal of Banking and Finance 26:5, 2002, 929-951

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Last update: May 14, 2002