WorkingPaperSeriesLoss-given-defaultandmacroeconomicconditionsBenjaminGalow,Oana-MariaGeorgescu,AureaPonteMarquesDisclaimer:ThispapershouldnotbereportedasrepresentingtheviewsoftheEuropeanCentralBank(ECB).TheviewsexpressedarethoseoftheauthorsanddonotnecessarilyreflectthoseoftheECB.No2954AbstractWestudythesensitivityoftherealisedloss-given-default(LGD)tomacroeconomicconditionsbyexplor-ingGlobalCredit’sconfidentialdatasetonobservedcashflowsfromdefaultedloans.Giventheprolongeddurationofloanrecovery,spanningseveralyears,andthepotentialformacroeconomicfluctuationsduringthistimeframe,ourstudyexploreswhetherthesensitivityofrealisedLGDtomacroeconomicconditionsvariesbasedonthetimingofcashflows.Wefindthat,regardlessofthecashflowtiming,thesensitivityoftheLGDtomacroeconomicconditionsishigherforreal-estatesecuredloansthanforunsecuredloans.ThemostrelevantmacroeconomicvariablesforthesecuredLGDaretheunemploymentrateandstockreturns,followedbyhousepricegrowthandthechangeinthelong-terminterestrate.Forunsecuredloans,realGDPgrowthandstockreturnsarethemostrelevantpredictors.Theseresultsmayberelevantforbothmicroandmacroprudentialpolicymakersbyinformingontheprocyclicalityofriskparametersandbankcapitalrequirements.Keywords:Banks,FinancialRisk,Bankruptcy,BusinessFluctuationsJELCodes:G21,G32,G33,E32ECBWorkingPaperSeriesNo29541Non-techn...
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