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Expected Loss Over Lifetime

Project Member(s): Scheule, H.

Funding or Partner Organisation: DAAD Germany (UA DAAD)

Start year: 2016

Summary: During the Global Financial Crisis (GFC), Australian and German financial institutions weathered the GRC well. This has been attributed to excellent prudential regulation in both countries. However, the GFC led to an increase of prudential regulation standards (i.e., Basel III) - in particular capital, liquidity and leverage requirements for banks. New accounting rules increased the risk monitoring horizon from one year to the lifetime of financial products (i.e. IFRS 9). To date there is limited knowledge on which methodologies to apply when modelling the lifetime loss of financial instruments. It is the aim of the proposed research project to compile data, develop econometric methods that allow to specify the term structure of losses (losses given default, LGDs) over the lifetime of financial instruments, to meet the regulations, and provide for a more resilient financial system. The travel is necessary to provide the collaborating researchers of the University of Technology Sydney (UTS) and the German University of Regensburg (UoR) with the access to local data that is limited to analysis at the respective locations. In addition, the project engages with the local regulators Australian Prudential Regulation Authority (APRA) and Deutsche Bundesbank through on-site feedback visits.

Publications:

Krueger, S, Roesch, D & Scheule, H 2018, 'The impact of loan loss provisioning on bank capital requirements', Journal of Financial Stability, vol. 36, pp. 114-129.
View/Download from: UTS OPUS or Publisher's site

FOR Codes: Financial Institutions (incl. Banking), Econometric and Statistical Methods, Finance Services