Regensburg 2004 – scientific programme

Parts | Days | Selection | Search | Downloads | Help

SYFT: Fat-Tail Distributions - Applications from Physics to Finance

SYFT 2: Fat-Tail Distributions - Applications from Physics to Finance

SYFT 2.1: Invited Talk

Thursday, March 11, 2004, 11:30–12:00, H1

Credit Risk in Banking - Methods, Problems, Implications — •Axel Müller-Groeling and Jan-Hendrik Schmidt — McKinseyCompany, Inc.

We give a short introduction into credit risk and its fundamental importance for the banking sector. We compare the main methods currently in use for measuring the loss distribution originating from loan portfolios and highlight some of the practical and methodological problems involved. The main observable used by banks, credit value-at-risk, depends sensitively on the tails of the distribution. It plays an important role in the overall steering model of banks, as it characterizes the economic capital required to run the credit business safely. We conclude with a discussion of value-based steering and the optimal capital allocation to credit-risk taking business units.