Download Utilización de las centrales de información de riesgo en los informes

Utilización de las centrales de información de riesgo en los
informes de estabilidad financiera
Jesús Saurina
Director. Financial Stability Department
Banco de España
BANCO CENTRAL DE BOLIVIA/CEMLA SEMINAR
La Paz
7 de Octubre de 2008
FINANCIAL STABILITY DEPARTMENT
Caveat
The views expressed here are
those of the author and not
necessarily those of the Banco de
España or the Eurosystem
FINANCIAL STABILITY DEPARTMENT
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Outline
Introduction
Financial Stability Review
–
Production
–
Structure
–
Goals
–
Discussion
Credit Register
Description
Utilization for FSR
FINANCIAL STABILITY DEPARTMENT
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Introduction- Mandate and concept of FS
The Bank of Spain has been assigned, among its duties, to promote the
stability of the financial system.
– Law 13/1994 of autonomy of the Bank of Spain, Art. 7, 5b)
There is no a single definition of financial stability, but
– We have learned that
• The effects of instability are severe for the real economy.
• The financial stability requires, among other elements: appropriate
institutional framework, appropriate macro policies, markets
infrastructures, prudential regulation and supervision, etc.
– Financial stability connects the analysis of each particular institution
(micro level) with the study of the behaviour of the whole financial system
(macro level).
FINANCIAL STABILITY DEPARTMENT
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Introduction- Financial Stability Department
The overall objective is to promote the financial stability
Produce the Financial Stability Report (FSR)
Regular and specific notes for the decision bodies of the Bank of Spain
– Regular: activity, doubtful asset ratios and profit and loss performance
– Specific: for instance, impact of the new accounting regulation
Policy design
– Loan loss provisions and capital requirements
Cost-benefit analysis of banking regulation
Research
– Empirical and regulatory policy orientation
– Bank topics (risks, competition, regulation, financial integration)
Participation in working groups dependent of international institutions
– BSC (BCE), RTF (BCBS),…
FINANCIAL STABILITY DEPARTMENT
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The Financial Stability Report
FINANCIAL STABILITY DEPARTMENT
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The Financial Stability Report: general principles
Spain: the analysis is performed from the perspective of the stability of the
Spanish financial system
The Spanish financial system presents a high degree of bancarisation: the
main target of the analysis are, therefore, the deposit institutions
The assessment is considered in aggregate terms, but also takes into account
the relative position of each institution through dispersion analysis
Risk analysis is key
– Shocks that are improbable, but possible, and of a high impact
Once the risks are identified, resilience is analysed
– Profitability
– Solvency
Analysis at consolidated level, but not only
Importance of research
FINANCIAL STABILITY DEPARTMENT
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The Financial Stability Report: production
The Directorate General (DG) of Regulation, through the Department of
FS, is in charge of preparing much of the FSR, as well as its coordination
Contributions are received from other General Directorates
– Research Department
• Macroeconomic outlook of Spain and the euro area
– International
• International macroeconomic and financial markets outlook
– Supervision
• Qualitative assessment of risks and resilience
– Operations
• Markets liquidity and infrastructures
In fact, there is an Editorial Committee
– Chairman: DG of Regulation
– One member from each DG
– Secretariat: Director of the FS Department
FINANCIAL STABILITY DEPARTMENT
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The Financial Stability Report: organization
The FSR is published twice a year: May and November. The process:
Editorial
Committee
First
Draft
FINANCIAL STABILITY DEPARTMENT
Editorial
Committee
Executive
Commission
Governing
Council
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The Financial Stability Report: structure
The FSR is organised in three chapters
– Chapter I: Macroeconomics risks and financial markets
– Chapter II: Deposit institutions and other participants in financial
markets
• Deposit institutions
– Banking risks
– Profitability
– Solvency
• Other financial market participants
– Insurance companies
– Other financial intermediaries
– Chapter III: Infrastructures
FINANCIAL STABILITY DEPARTMENT
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The Financial Stability Report: structure
Chapter I – Macroeconomic risks and financial market
Information on spreads and stock markets
Risk indices
– Credit Default Swaps
– Stock price volatility
Macroeconomic information
– Economic growth
FINANCIAL STABILITY DEPARTMENT
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The Financial Stability Report: structure
Chapter II – Deposit institutions and others
Credit risk: it is the most important
– Deposit institutions: credit policy
• Analysis of its consolidated balance sheet
• Credit growth (total, sectors, activities, …)
• Doubtful assets and doubtful assets ratios
• Financial assets abroad
Liquidity and market risks
– Debt, stock and exchange rate markets. Markets infrastructures
– Institutions: liquidity gap, assets and liabilities by degree of liquidity
Profitability
Solvency
FINANCIAL STABILITY DEPARTMENT
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The Financial Stability Report: structure
Chapter II – Deposit institutions and others
Other participants in financial markets
– Insurance companies
– Collective investment institutions
– Private equity
FINANCIAL STABILITY DEPARTMENT
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The Financial Stability Report: structure
Chapter III – Infrastructures
Market infrastructures
– Clearing and settlement systems
Regulatory infrastructures
– Accounting regulations
– Prudential regulation
– Monetary policy instruments
– Payment systems
FINANCIAL STABILITY DEPARTMENT
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The Financial Stability Report : goals
Contribute to promote the financial stability
Provide the Bank of Spain assessment on financial stability
– International comparison
A vehicle to dialog with banks on regulatory matters
– Instrument to send messages to institutions
Instrument to educate financial services customers
– Simple and clear analysis
Research
FINANCIAL STABILITY DEPARTMENT
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Discussion
Ownership
– Cooperation
Macro perspective versus micro bank level
– Financial Stability Report/Financial Stability Department
To enhance financial stability is the main goal of a FSR
Role of research
FINANCIAL STABILITY DEPARTMENT
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The Spanish Credit Register (CIR)
FINANCIAL STABILITY DEPARTMENT
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Credit Register information
Low threshold: 6.000 euros
Comprehensive coverage: all credit institutions
Population of loans to firms and mortgages
Information about default, collateral,
instrument, amount, industry, province
maturity,
No information on interest rates
FINANCIAL STABILITY DEPARTMENT
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Use of Credit Register
Direct use
Main purpose of Spanish Credit Register (CIR)
Support inspectors/examiners work
Extract information from CIR
Sampling for planning visits
Monitoring of borrowers (exposures and quality)
Indirect use
Financial stability analysis/regulatory policy/research
All the three filter into the Financial Stability Report
FINANCIAL STABILITY DEPARTMENT
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Financial stability usage
Analysis of credit risk
Credit lines
Collateral
Relationship lending
Lending cycle and risk taking
Dynamic provisions
Monetary policy and risk taking
Impact assessment
Procyclicality
Mortgages
Corporate loans
Calibration of alternative proposals
FINANCIAL STABILITY DEPARTMENT
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NPL (long term perspective) / Vintages (short term)
DOUBTFUL ASSETS RATIO.
DEFAULT RATE CURVES.
INDIVIDUALS' MORTGAGES.
1991
1992
1993
2005
FIRMS
2006
2007
HOUSEHOLDS
%
9
1.6
8
%
1.4
7
1.2
6
1.0
5
0.8
4
0.6
3
2
0.4
1
0.2
0
0.0
1986
1993
FINANCIAL STABILITY DEPARTMENT
2000
2007
0
2
4
6
8
10
12
14
16
18 20
21
Stress testing
2006
2007
2007 S TRES S TES T
EL (2006)
EL (2007)
EL (2007)
STRESS
VaR (2006)
VaR (2007)
VaR (2007)
STRESS
€m
0
FINANCIAL STABILITY DEPARTMENT
2 0 ,0 0 0
4 0 ,0 0 0
6 0 ,0 0 0
8 0 ,0 0 0
22
Credit lines
CIR contains information on amount drawn and
undrawn
Usage ratio = drawn / (drawn + undrawn)
Jiménez, Lopez and Saurina (RFS 2009)
FINANCIAL STABILITY DEPARTMENT
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Credit lines
Differences in the usage ratio depending on the quality
of the firm
80
75
70
65
60
55
50
45
40
-5
-4
Defaulted credit line. Median
FINANCIAL STABILITY DEPARTMENT
-3
-2
No. of years from default
-1
0
Non-defaulted credit line. Median
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Collateral
Theory: collateral vs adverse selection and moral
hazard
Willingness to post collateral signals good credit quality
Collateral posted increases incentives to repay the loan
Empirical evidence: Jiménez, Salas and Saurina (JFE
2006)
Collateral asked for riskier loans
FINANCIAL STABILITY DEPARTMENT
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Relationship lending
It is good for a bank AND a borrower to have a long term relationship
Less of a capture and much more on a mutually productive relationship
A. YEAR ON YEAR RATE OF CHANGE IN CREDIT BY
YEARS OF RETATIONSHIP WITH INSTITUTIONS
B. YEAR ON YEAR RATE OF CHANGE IN CREDIT BY
NUMBERS OF BANKING RELATIONSHIPS.
NEW
LESS THAN 1 YEAR
FROM 1 TO 2 YEARS
MORE THAN 2 YEARS
MORE THAN 10 YEARS
TOTAL
ONE
TWO
THREE OR FOUR
BETWEEN 5 AND 10
MORE THAN 10
TOTAL
%
%
50
80
45
60
40
40
35
30
20
25
0
20
15
-20
10
-40
5
0
-60
J un- 03
J un-04
J un- 05
FINANCIAL STABILITY DEPARTMENT
J un- 06
J un-07
J un- 08
J un- 03
J un-04
J un-05
J un- 06
J un-07
J un-08
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Lending cycle and risk taking
Banks’ lending mistakes are more prevalent during
upturns
Borrowers and lenders are overconfident about investment
projects (financing NPV<0 projects)
Banks’ over optimism implies lower credit policy standards
During recessions, banks suddenly turn very
conservative and tighten credit standards (well beyond
NPV>0)
Lending cycle with impact on the real economy
FINANCIAL STABILITY DEPARTMENT
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Lending cycle and risk taking
Jiménez and Saurina (IJCB, 2006)
Relation between credit growth and problem loans at bank level?
Evidence of a direct, although lagged, relationship between credit
growth and credit risk (a rapid increase in loan portfolios is positively
associated with an increase in non-performing loan ratios later on)
Analysis of default probabilities of individual loans:
Loans granted during boom periods have a higher PD than those
granted during slow credit growth periods
Impact of the cyclical position on collateral requirements, loan by
loan
In boom periods collateral requirements are relaxed while the
opposite happens during recessions
FINANCIAL STABILITY DEPARTMENT
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Lending cycle and risk taking
There is (robust) evidence of looser credit standards
during expansions
Banking supervisors’ concerns are well rooted both in
theoretical and empirical grounds
A prudential tool is needed to cope with the potential
problems due to too rapid credit growth
Dynamic provisions
FINANCIAL STABILITY DEPARTMENT
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Monetary policy and risk taking
Do low interest rates encourage bank risk-taking, but at the
same time reduce credit risk on outstanding loans?
What is the impact of the stance and path of MP on credit
risk?
Duality of interest rate:
On the one hand, low interest rates may create excessive risktaking
On the other hand, low interest rates may reduce the risk of
outstanding bank credit
Jiménez, Ongena, Peydró and Saurina (WP 2008) provide
the first hard evidence on this dilemma
FINANCIAL STABILITY DEPARTMENT
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Monetary policy and risk taking
We find that banks soften their lending standards with lower interest
rates
They lend more to borrowers with a bad credit history and with higher
uncertainty
More importantly, we also find evidence of the duality of interest rates:
Credit risk increases with lower interest rates at loan origination
But also increases as a result of higher rates during the life of the loan,
i.e., conditioning on the loan being granted, lower rates reduce the credit risk
of outstanding loans
Our results, therefore, suggest that low rates encourage risk-taking,
reduce credit risk in the short-term but worsen it in the medium-term
We find that risk-taking is not equal for all type of banks
Small banks and more liquid banks take on more extra risk than other
banks when interest rates are lower
FINANCIAL STABILITY DEPARTMENT
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Monetary policy and risk taking
1.3
1.2
1.1
Hazard rate
1
0.9
0.8
0.7
0.6
0.5
0.4
5
4
Policy rate prior to origination
FINANCIAL STABILITY DEPARTMENT
3
2
2
3
4
5
Policy rate until maturity
Monetary policy and risk taking
Bank risk-taking increases when rates prior to loan origination are
low
There is a completely different impact of lower interest rates on
the credit risk of new vs outstanding loans
In the short-run lower interest rates reduce total credit risk of banks since
the volume of outstanding loans is larger than the volume of new loans
In the medium term, lower interest rates increase credit risk in the
economy
A period of low interest rates followed by a severe monetary contraction
maximizes credit risk, as the already “hazardous” cohort of new loans gets
exposed to higher interest rates as outstanding loans
On the other hand, and asymmetrically, vertical declines in interest rates
minimize total credit risk ceteris paribus
FINANCIAL STABILITY DEPARTMENT
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Impact assessment
Impact of Basel II on lending to SMEs
Hot topic for the BCBS some time ago
Use Credit Register to assess the impact
Sample PD converges to population PD
Plug PD in Basel II formulas and obtain capital
requirements
Compare new requirements with old ones
Saurina and Trucharte (JFSR 2004)
FINANCIAL STABILITY DEPARTMENT
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Impact assessment
8
Current system
7
6
5
4
3
SA
Turnover <€50 million
Exposure <€1 million
Sales <€50 million
Exposure >€1 million
IRB
2
1
Turnover >€50 million
0
0
1994
1995
1996
1997
FINANCIAL STABILITY DEPARTMENT
1998
1999
2000
2001
1
2
3
4
5
6
7
SMEs
SMEs
Large
(exp.<€1million) (exp.>€1million) firms
8
9
35
Procyclicality
A model of PDs for mortgages using Credit Register
information only
Calculate PDs PIT and TTC
Plug in the estimated PDs in Basel II curves
Saurina and Trucharte (JFSR 2007)
FINANCIAL STABILITY DEPARTMENT
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Procyclicality-mortgages
FINANCIAL STABILITY DEPARTMENT
Procyclicality-mortgages
FINANCIAL STABILITY DEPARTMENT
Adjusting procyclicality
Repullo, Saurina and Trucharte (G20 2009)
Concern: bank capital regulation may amplify business cycles
In particular, contraction in loan supply in downturns due to
Lower bank capital due to higher default rates
Possibly higher capital requirements (Basel II)
Basel II will make things worse
Rationale for cyclical adjustment of cap. Requirements
How should cyclical adjustment of Basel II be made?
Two basic alternatives
Smooth the inputs of the Basel II formula
Through-the-cycle ratings
Smooth the output (with point-in-time ratings)
FINANCIAL STABILITY DEPARTMENT
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Adjusting procyclicality
Estimate model of probabilities of default (PDs)
Data on Spanish firms’ loans for the period 1984-2007 from Credit
Register
Compute corresponding Basel II capital requirements
Smooth cyclical behavior using Hodrick-Prescott (HP) filter
Compare different smoothing procedures
Using root mean square deviations from HP benchmark
Root mean square deviations (RMSD) from HP benchmark
RMSD (%)
FINANCIAL STABILITY DEPARTMENT
TTC ratings
0.45
GDP growth multiplier (α = 0.086)
0.36
Credit growth multiplier (α = 0.066)
0.60
Stock market multiplier (α = 0.017)
0.75
Autoregressive adjustment (δ = 0.30)
0.48
40
Procyclicality-corporates
FINANCIAL STABILITY DEPARTMENT
Procyclicality-corporates
FINANCIAL STABILITY DEPARTMENT
Alternative adjustments- GDP
FINANCIAL STABILITY DEPARTMENT
Conclusions
Main purpose of a Credit Register:
To support inspectors/examiners work
Micro-prudential approach
However, plenty of scope to be used in other areas
Financial stability: understanding bank lending
Monitoring of credit risk, credit lines usage, role of collateral, lending
standards, MP and risk taking
Policy design
Dynamic provisions, Basel II calibration, impact assessment
Research
Filter into Financial Stability Review
Credit Registers are a key element of a macro-prudential approach
FINANCIAL STABILITY DEPARTMENT
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References
Jiménez, G., Lopez, J.A., and Saurina, J. 2009. “Empirical analysis of
corporate credit lines”, forthcoming Review of Financial Studies.
Jiménez, G., Salas Fumás, V. and Saurina, J., 2006. “Determinants of
Collateral”. Journal of Financial Economics, 81, 255-281.
Jiménez, G and Saurina, J., 2006. "Credit Cycles, Credit Risk, and
Prudential Regulation". International Journal of Central Banking, June,
65-98.
Jiménez, G., Peydró, J.L., Ongena, S., Saurina, J. 2008. “Hazardous times
for monetary policy: What do twenty-three million bank loans say about
the effects of monetary policy on credit risk-taking?” WP 0833 Banco de
España.
Repullo, R. J. Saurina and C. Trucharte (2009): “Mitigating the
Procyclicality of Basel II”, in Macroeconomic Stability and Financial
regulation: Key Issues for the G20, edited by M. Dewatripont, X. Freixas
and R. Portes. RBWC/CEPR
FINANCIAL STABILITY DEPARTMENT
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References
Saurina, J. and Trucharte, C. 2004. “The Impact of Basel II on Lending to
Small- and Medium-Sized Firms: A Regulatory Policy Assessment Based
on Spanish Credit Register. Journal of Financial Services Research.
Volume 26, Issue 2. Pp. 121-144.
Saurina, J. and Trucharte, C. 2007. “An assessment of Basel II
procyclicality in mortgage portfolios. Journal of Financial Services
Research; Volume 32, No. 1-2, 81-101.
Saurina, J. (2009a): “Dynamic Provisioning. The experience of Spain.”
Crisis Response. Public Policy for the Private Sector. Note Number 7.
July. The World Bank.
Saurina, J. (2009b): “Countercyclical loan loss provisions in Spain”. De
próxima publicaicón en Estabilidad Financiera.
FINANCIAL STABILITY DEPARTMENT
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