BANK3011 Lecture Notes - Lecture 6: Commercial Bank, Idiosyncrasy, Brad Delson

• School: University of Sydney
• Department: Bank Financial Management
• Course: BANK3011
• Professor: Eliza Wu

Document Summary

Credit risk loan portfolios and concentration risk. Migration analysis: the allocation of obligors to rating grades is useful in identifying and reducing loan portfolio concentration risk, rating of loan pools or certain sectors are tracked. Concentration limits: (cid:1829)(cid:1867)(cid:1866)(cid:1855)(cid:1857)(cid:1866)(cid:1872)(cid:1870)(cid:1872)(cid:1861)(cid:1867)(cid:1866) (cid:1861)(cid:1865)(cid:1861)(cid:1872)=(cid:1865)(cid:1876)(cid:1861)(cid:1865)(cid:1873)(cid:1865) (cid:1864)(cid:1867)(cid:1871)(cid:1871) (cid:1871) (cid:1868)(cid:1857)(cid:1870)(cid:1855)(cid:1857)(cid:1866)(cid:1872)(cid:1859)(cid:1857) (cid:1867)(cid:1858) (cid:1855)(cid:1868)(cid:1861)(cid:1872)(cid:1864) , external limits set on maximum loan size to individual borrowers / sectors / segments, e. g. (cid:2869) (cid:3039)(cid:3042)(cid:3046)(cid:3046) (cid:3045)(cid:3047)(cid:3032) maximum loan to individuals = 10% of capital. Kmv portfolio manager model: example: suppose that bank of usyd holds two loans with the following characteristics: Bank financial management: correlation between returns of loans, (cid:1831)(cid:1830)(cid:1832)(cid:3036) (cid:1833)(cid:1830)(cid:3036) is expected loss (cid:1831)(cid:3036), risk of loan to borrower (cid:1861): (cid:3036)= (cid:1831)(cid:1830)(cid:1832)(cid:3036)(cid:4666)(cid:883) (cid:1831)(cid:1830)(cid:1832)(cid:3036)(cid:4667) (cid:1833)(cid:1830)(cid:3036) made to borrowers (cid:1861) and (cid:1862) estimated borrowers (cid:1861) and (cid:1862): extent of as correlation between common correlation related to industry, return components of asset returns of geography and time: example: sydneyside bank uses the.