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Int. J. Financial Stud. 2014, 2(1), 122-143; doi:10.3390/ijfs2010122
Article

Bank Credit Risk Management and Rating Migration Analysis on the Business Cycle

1
 and 1,2,*
1 Shipping, Trade & Transport Department, Business School, University of Aegean, Chios 82100, Greece 2 Audencia Nantes School of Management, Nantes Cedex 3 44312, France
* Author to whom correspondence should be addressed.
Received: 6 November 2013 / Revised: 11 February 2014 / Accepted: 15 February 2014 / Published: 3 March 2014
(This article belongs to the Special Issue Credit Risk under Moral Hazard)
View Full-Text   |   Download PDF [239 KB, 25 March 2014; original version 3 March 2014]

Abstract

Credit risk measurement remains a critical field of top priority in banking finance, directly implicated in the recent global financial crisis. This paper examines the dynamic linkages between credit risk migration due to rating shifts and prevailing macroeconomic conditions, reflected in alternative business cycle states. An innovative empirical methodology applies to bank internal rating data, under different economic scenarios and investigates the implications of credit risk quality shifts for risk rating transition matrices. The empirical findings are useful and critical for banks to align to Basel guidelines in relation to core capital requirements and risk-weighted assets in the underlying loan portfolio.
Keywords: credit rating migration; business cycles; stress testing; Basel guidelines credit rating migration; business cycles; stress testing; Basel guidelines
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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MDPI and ACS Style

Gavalas, D.; Syriopoulos, T. Bank Credit Risk Management and Rating Migration Analysis on the Business Cycle. Int. J. Financial Stud. 2014, 2, 122-143.

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