An analysis and critique of the BIS proposal on Capital Adequacy and Ratings (#10) 林耕賢...

An analysis and critique An analysis and critique of the BIS proposal on Caof the BIS proposal on Capital Adequacy and Ratinpital Adequacy and Ratin

gsgs

(#10) (#10) 林耕賢陳淑芳余冠廷林耕賢陳淑芳余冠廷

OutlineOutline

名詞解釋名詞解釋國際清算銀行國際清算銀行 (BIS)(BIS) 巴塞爾組織巴塞爾組織資本適足率資本適足率

BASEL1BASEL1 的起源的起源 New BASEL (BASEL II) New BASEL (BASEL II) 的改革背景的改革背景 BIS 3 stages proposals draftBIS 3 stages proposals draft

名詞解釋名詞解釋 (1)(1) 國際清算銀行國際清算銀行 (BIS)(BIS)

根據１９３０年１月２０日簽訂的海牙國際協根據１９３０年１月２０日簽訂的海牙國際協定組成。定組成。

現在是西歐多邊清算制度的收付代理人，並接現在是西歐多邊清算制度的收付代理人，並接受各國中央銀行的存款，代為買賣黃金、外匯、受各國中央銀行的存款，代為買賣黃金、外匯、發行債券，辦理國際性政府借款﹔促進中央銀發行債券，辦理國際性政府借款﹔促進中央銀行之間的合作﹔為國際支付往來提供方便。該行之間的合作﹔為國際支付往來提供方便。該行掌握著世界１４０家中央銀行部分國際儲備。行掌握著世界１４０家中央銀行部分國際儲備。

BISBIS 的歷史的歷史 BISBIS 的建立的建立

The BIS was established in 1930, which dealt with the issue The BIS was established in 1930, which dealt with the issue of the reparation payments imposed on Germany by the Treof the reparation payments imposed on Germany by the Treaty of Versailles following the First World War. aty of Versailles following the First World War.

The new bank was to take over the functions previously perThe new bank was to take over the functions previously performed by the Agent General for Reparations in Berlin: collformed by the Agent General for Reparations in Berlin: collection, administration and distribution of the annuities payection, administration and distribution of the annuities payable as reparations.able as reparations.

The BIS was also created to act as a trustee for the Dawes anThe BIS was also created to act as a trustee for the Dawes and Young Loans (international loans issued to finance reparad Young Loans (international loans issued to finance reparations) and to promote central bank cooperation in general. tions) and to promote central bank cooperation in general.

The reparations issue quickly faded, focusing the Bank's actThe reparations issue quickly faded, focusing the Bank's activities entirely on cooperation among central banks and, inivities entirely on cooperation among central banks and, increasingly, other agencies in pursuit of monetary and financreasingly, other agencies in pursuit of monetary and financial stability. cial stability.

BISBIS 的角色扮演的角色扮演在財政領域內的角色在財政領域內的角色財政領域之外的角色財政領域之外的角色提供緊急財政支援提供緊急財政支援

BISBIS 的角色扮演的角色扮演在財政領域內的角色在財政領域內的角色

In the immediate aftermath of the Second World War In the immediate aftermath of the Second World War and until the early 1970s ,cooperation at the BIS focuseand until the early 1970s ,cooperation at the BIS focused on implementing and defending the Bretton Woods sd on implementing and defending the Bretton Woods system. ystem.

In the 1970s and 1980s, the focus was on managing crosIn the 1970s and 1980s, the focus was on managing cross-border capital flows following the oil crises and the ins-border capital flows following the oil crises and the international debt crisis. ternational debt crisis.

The 1970s crisis also brought the issue of regulatory suThe 1970s crisis also brought the issue of regulatory supervision of internationally active banks to the fore, respervision of internationally active banks to the fore, resulting in the 1988 ulting in the 1988 Basel Capital AccordBasel Capital Accord and its " and its "Basel IIBasel II" " revision of 2001-06. revision of 2001-06.

More recently, the issue of financial stability in the wakMore recently, the issue of financial stability in the wake of economic integration and globalisation, as highlige of economic integration and globalisation, as highlighted by the 1997 Asian crisis, has received a lot of attenhted by the 1997 Asian crisis, has received a lot of attention. tion.

BISBIS 的角色扮演的角色扮演財政領域之外的角色財政領域之外的角色

The BIS has always performed "traditional" bankThe BIS has always performed "traditional" banking functions for the central bank community (eg ing functions for the central bank community (eg gold and foreign exchange transactions), as well gold and foreign exchange transactions), as well as trustee and agency functions. as trustee and agency functions.

The BIS was the agent for the European PaymentThe BIS was the agent for the European Payments Union (EPU, 1950-58), helping the European cus Union (EPU, 1950-58), helping the European currencies restore convertibility after the Second Wrrencies restore convertibility after the Second World War. orld War.

The BIS has acted as the agent for various EuropeThe BIS has acted as the agent for various European exchange rate arrangements, including the Euan exchange rate arrangements, including the European Monetary System (EMS, 1979-94) which propean Monetary System (EMS, 1979-94) which preceded the move to a single currency. receded the move to a single currency.

BISBIS 的角色扮演的角色扮演提供緊急財政支援提供緊急財政支援

During the 1931-33 financial crisis, the BIS organiDuring the 1931-33 financial crisis, the BIS organised support credits for both the Austrian and Gersed support credits for both the Austrian and German central banks. man central banks.

In the 1960s, the BIS arranged special support creIn the 1960s, the BIS arranged special support credits for the Italian lira (1964) and the French frandits for the Italian lira (1964) and the French franc (1968), and two so-called Group Arrangements c (1968), and two so-called Group Arrangements (1966 and 1968) to support sterling. (1966 and 1968) to support sterling.

More recently, the BIS has provided finance in thMore recently, the BIS has provided finance in the context of IMF-led stabilisation programmes (ee context of IMF-led stabilisation programmes (eg for Mexico in 1982 and Brazil in 1998). g for Mexico in 1982 and Brazil in 1998).

名詞解釋名詞解釋 (2)(2) 巴塞爾組織巴塞爾組織

國際清算銀行國際清算銀行 (BIS)(BIS) 於於 19741974 年結合年結合 1010 大工業大工業國共同設立巴塞爾銀行監理委員會。國共同設立巴塞爾銀行監理委員會。

目標：在『國外銀行業務無法避免監理』和目標：在『國外銀行業務無法避免監理』和『適當監理』兩項原則下，消弭世界各國監理『適當監理』兩項原則下，消弭世界各國監理範圍差異範圍差異

擁有近三十個技術工作團隊，執行每年鎖定的擁有近三十個技術工作團隊，執行每年鎖定的計畫及目標計畫及目標

委員會本身不具任何跨國監理的權力，因此其委員會本身不具任何跨國監理的權力，因此其決議沒有也未企圖擁有法律上的強制效力決議沒有也未企圖擁有法律上的強制效力

名詞解釋名詞解釋 (3)(3) 資本適足率資本適足率

巴塞爾銀行監理委員會於巴塞爾銀行監理委員會於 19881988 年年 77 月發布月發布「銀行自有資本之計算與自有資本標準之國際「銀行自有資本之計算與自有資本標準之國際通例」，此一規範一般稱為巴塞爾資本協定，通例」，此一規範一般稱為巴塞爾資本協定，其奠定了現行銀行風險基準資本適足性的基礎。其奠定了現行銀行風險基準資本適足性的基礎。

自有資本淨額自有資本淨額信用風險性資產額信用風險性資產額＋＋市場風險市場風險應計提之資本應計提之資本 ×× 12.5 12.5

８％

BASEL 1BASEL 1 的起源的起源歷史背景歷史背景

19741974 年年 5.65.6 月西德的賀斯塔特銀行及美國第月西德的賀斯塔特銀行及美國第 2200 大的富蘭克林銀行倒閉。大的富蘭克林銀行倒閉。

在這次事件衝擊下，外匯市場收縮，國際資金在這次事件衝擊下，外匯市場收縮，國際資金緊張。使得銀行業本身的脆弱浮上檯面。譬如緊張。使得銀行業本身的脆弱浮上檯面。譬如自有資金比重下降，放款對存款比例增大，存自有資金比重下降，放款對存款比例增大，存款準備金不足等。款準備金不足等。

從從 1960~19741960~1974 ，美國全部商業銀行資本占資產，美國全部商業銀行資本占資產比重從比重從 8.1%8.1%降到降到 6.9%6.9% ，放款佔存款比例從，放款佔存款比例從 556.2%6.2%升至升至 82%82% ，存款準備金結構也失衡。，存款準備金結構也失衡。

BASEL 1BASEL 1 的起源的起源協定的設立協定的設立

19751975 年年 99 月，第一個《巴塞爾協定》提出。月，第一個《巴塞爾協定》提出。核心內容是針對國際性銀行監管主體缺位的核心內容是針對國際性銀行監管主體缺位的

現實，提出了兩個基本之監管思想：現實，提出了兩個基本之監管思想：1.1. 任何銀行的國外機構全都不能逃避監管。任何銀行的國外機構全都不能逃避監管。2.2. 母國和地主國應共同承擔相應職責。母國和地主國應共同承擔相應職責。

19881988 年年 77 月，巴塞爾委員會對協定進行了首月，巴塞爾委員會對協定進行了首次實質性完善，並通過了《關於統一國際銀次實質性完善，並通過了《關於統一國際銀行的資本計算和資本標準的報告》（簡稱行的資本計算和資本標準的報告》（簡稱《巴塞爾報告》）。《巴塞爾報告》）。

New BASEL New BASEL 的改革背景的改革背景 It give an equal weighting to all copoIt give an equal weighting to all copo

rates credits whether of high or low rates credits whether of high or low credit quality.credit quality.

It fails to incorporate potential capitIt fails to incorporate potential capital savings from credit (loan) portfolial savings from credit (loan) portfolio diversification.o diversification.

It has led to extensive regulatory capIt has led to extensive regulatory capital arbitrage which adds to the riskital arbitrage which adds to the riskness of bank asset portfolios.ness of bank asset portfolios.

BIS 3 stages proposals draft BIS 3 stages proposals draft 19991999 年年 66月國際清算銀行巴塞爾銀行監理月國際清算銀行巴塞爾銀行監理

委員會公布一個更具風險敏感性的新資本委員會公布一個更具風險敏感性的新資本適足性架構，或稱修正草案諮詢文件第一適足性架構，或稱修正草案諮詢文件第一版版 (Consultative Paper,CP1)(Consultative Paper,CP1) ，將以取代，將以取代 11988988 年資本協定年資本協定。。

BIS 3 stages proposals BIS 3 stages proposals draftdraft

修正草案內容修正草案內容1)1) the 8% risk based ratio would be replaced bthe 8% risk based ratio would be replaced b

y weighting based on the external credit agy weighting based on the external credit agency rating of the borrower .ency rating of the borrower .

2)2) some sophisticated banks have developed tsome sophisticated banks have developed their own internal rating systems for loans .heir own internal rating systems for loans .

3)3) given appropriate model and database devegiven appropriate model and database development and testing some banks may be ablopment and testing some banks may be able to use their own internal credit risk modle to use their own internal credit risk models to calculate capital requirements .els to calculate capital requirements .

The BIS Stage 1 ProposalThe BIS Stage 1 Proposal

1988 BIS: All corporate loans have 1988 BIS: All corporate loans have the same 100% risk-weight implying the same 100% risk-weight implying the same minimum capital the same minimum capital requirement 8%.requirement 8%.

1999 BIS: The 8% risk based ratio 1999 BIS: The 8% risk based ratio should be replaced by weightings should be replaced by weightings based on the external credit agency based on the external credit agency rating of the borrower.rating of the borrower.

The BIS Stage 1 ProposalThe BIS Stage 1 Proposal Examine the three-bucket approach for Examine the three-bucket approach for

corporate borrowers with two questions:corporate borrowers with two questions:

1. Does this approach lead to bank capital 1. Does this approach lead to bank capital reserves rising prior to recessions? (i.e. reserves rising prior to recessions? (i.e. before the realization of loan losses occurs)before the realization of loan losses occurs)

→ → A well-designed regulatory system A well-designed regulatory system should see capital reserves rising during should see capital reserves rising during periods of high profitability and earnings periods of high profitability and earnings for banks and falling during recessions as for banks and falling during recessions as “unexpected losses” are written off against “unexpected losses” are written off against capital.capital.


2. Does the bucketing system make economic 2. Does the bucketing system make economic sense? That is, how homogeneous in terms osense? That is, how homogeneous in terms of risk are the different buckets.f risk are the different buckets.

→ → Bucket 2 encompasses both investment grBucket 2 encompasses both investment grade debt (A and BBB) as well as below investade debt (A and BBB) as well as below investment grade debt (BB and B). ment grade debt (BB and B).

Moreover, if they are not homogenous, wMoreover, if they are not homogenous, what relative risk-weighting scheme would thhat relative risk-weighting scheme would these data suggest?ese data suggest?

Empirical ResultEmpirical Result

1.1. The lead-lag relationship of capital reThe lead-lag relationship of capital reserves:serves:

Rating agencies move slowly and theiRating agencies move slowly and their ratings are often inflexible.r ratings are often inflexible.

A capital adequacy system builts arouA capital adequacy system builts around traditional agency ratings might end traditional agency ratings might even follow, rather than lead, the busiven follow, rather than lead, the business cycle.ness cycle.


Rather than leading the recession, minRather than leading the recession, minimum capital requirements would havimum capital requirements would have been lagging it and also the rising wae been lagging it and also the rising wave of loan defaults.ve of loan defaults.

→ → Some banks would have had to builSome banks would have had to build up their minimum reserve requiremd up their minimum reserve requirements during the recession with a peak ents during the recession with a peak minimum capital ratio being achieved minimum capital ratio being achieved at or near the recession’s end.at or near the recession’s end.


2.2. Bucket risk homogeneity:Bucket risk homogeneity: We examined data on bond issues We examined data on bond issues

(and issuers) over the 1981-1999 (and issuers) over the 1981-1999 period. period.

Our focus of attention was the Our focus of attention was the degree of homogeneity degree of homogeneity (heterogeneity) of unexpected loss (heterogeneity) of unexpected loss rates over the sample period.rates over the sample period.

1.1. We use the data of bond to represent We use the data of bond to represent loan of each company. loan of each company.

2.2. Collecting the price and coupon of tCollecting the price and coupon of the bonds one year prior to default ahe bonds one year prior to default and the price of the bonds just after dnd the price of the bonds just after defaults, then we obtained the loss raefaults, then we obtained the loss rate of each bond default.(From 1981~te of each bond default.(From 1981~1999)1999)

3.3. Using Mean value (loss rate) to repreUsing Mean value (loss rate) to represent the “Expected Loss Rate.”sent the “Expected Loss Rate.”

4.4. The difference between Q% confideThe difference between Q% confidence coefficient and mean of data is nce coefficient and mean of data is “Unexpected Loss Rate.”“Unexpected Loss Rate.”

StatisticsStatistics

　　 AA BBBBBB BBBB BBCCC&LowCCC&Low

erer

TotalTotal 12,1212,122 2 7,576 7,576 5,375 5,375 5,372 5,372 493 493

DefaultDefault 7 7 47 47 64 64 375 375 199 199

Non-Non-DefaDefaultult

12,1112,115 5 7,529 7,529 5,311 5,311 4,997 4,997 294 294

Mean(LoMean(Loss ratss rat

e)e) 0.012 0.012 0.067 0.067 0.298 0.298 1.734 1.734 14.079 14.079

S.D.(LosS.D.(Loss rats rat

e)e)0.628 0.628 1.027 1.027 3.181 3.181 8.066 8.066 28.890 28.890


Fitting the data (loss rate) into two Fitting the data (loss rate) into two probability models to do the probability models to do the empirical researches.empirical researches.

1. Normal distribution1. Normal distribution

2. Actual distribution 2. Actual distribution

Normal distributionNormal distribution

　　 AA BBBBBB BBBB BB CCC&LowerCCC&Lower

99.9799.97%%

2.142 2.142 3.458 3.458 10.619 10.619 25.947 25.947 88.501 88.501

99.0099.00%%

1.448 1.448 2.323 2.323 7.102 7.102 17.030 17.030 55.455 55.455

95.0095.00%%

1.021 1.021 1.623 1.623 2.051 2.051 11.533 11.533 35.085 35.085

MeanMean 0.012 0.012 0.067 0.067 0.298 0.298 1.734 1.734 14.079 14.079

S.D.S.D.(%)(%) 0.628 0.628 1.027 1.027 3.181 3.181 8.066 8.066 28.890 28.890

Actual distributionActual distribution　　 AA BBBBBB BBBB BB CCC&LowerCCC&Lower

TotalTotal 12,122 12,122 7,576 7,576 5,375 5,375 5,372 5,372 493 493

DefaultDefault 7 7 47 47 64 64 375 375 199 199


12,115 12,115 7,529 7,529 5,311 5,311 4,997 4,997 294 294

0.03%0.03% 3.64 3.64 2.27 2.27 1.61 1.61 1.61 1.61 0.15 0.15

1.00%1.00% 121.22 121.22 75.76 75.76 53.75 53.75 53.72 53.72 4.93 4.93

0.50%0.50% 60.61 60.61 378.8 378.8 268.8268.8 268.6 268.6 2.47 2.47


99.9799.97%%

14.988 14.988 24.933 24.933 54.702 54.702 83.266 83.266 85.921 85.921

99.0099.00%%

0*0* 0*0* 4.702 4.702 43.266 43.266 70.921 70.921

95.0095.00%%

0*0* 0*0* 0*0* 13.266 13.266 50.921 50.921

MeanMean 0.012 0.012 0.067 0.067 0.298 0.298 1.734 1.734 14.079 14.079

S.D.S.D.(%)(%) 0.628 0.628 1.027 1.027 3.181 3.181 8.066 8.066 28.890 28.890

Actual Actual distributiondistribution


Nomatter what model we use,the four degNomatter what model we use,the four degree of credit qualities in bucket 2 should nree of credit qualities in bucket 2 should not be equally risk weighted.ot be equally risk weighted.

Comparing with bucket 2 and bucket 3,we Comparing with bucket 2 and bucket 3,we find that 100% risk-weighting for bucket 2 find that 100% risk-weighting for bucket 2 and 150% for bucket 3 is not appropriate.and 150% for bucket 3 is not appropriate.

The reason is “the degree of homogeneity.The reason is “the degree of homogeneity.” ”

Revised methodRevised method

Confounding “loan losses” with “boConfounding “loan losses” with “bond losses.”nd losses.”

For non-defaulter,we have used the nuFor non-defaulter,we have used the number of “issuers.”mber of “issuers.”

For defaulter,we have used the numbeFor defaulter,we have used the number of “issues.” r of “issues.”

Revised methodRevised method

Way: Only using the most “senior” bond oWay: Only using the most “senior” bond or note of each defaulting issuer.r note of each defaulting issuer.

What is “senior” ? What is “senior” ? The one with highest price one year prior to The one with highest price one year prior to

default.default. Benefit: Since most bank loans have collaterBenefit: Since most bank loans have collater

al backing and have higher prices.These “sal backing and have higher prices.These “senior” bonds are more like loan than others.enior” bonds are more like loan than others.

StatisticsStatistics


TotalTotal 12,117 12,117 7,541 7,541 5,330 5,330 5,205 5,205 387 387

DefaultDefault 2 2 12 12 19 19 208 208 93 93


12,115 12,115 7,529 7,529 5,311 5,311 4,997 4,997 294 294

MeanMean 0.002 0.002 0.091 0.091 0.205 0.205 2.126 2.126 12.078 12.078

S.D.(%)S.D.(%) 0.193 0.193 2.454 2.454 3.658 3.658 11.529 11.529 24.521 24.521

Normal distributionNormal distribution


99.97%99.97% 0.659 0.659 8.332 8.332 12.351 12.351 37.440 37.440 72.077 72.077

99.00%99.00% 0.446 0.446 5.619 5.619 8.306 8.306 24.694 24.694 44.967 44.967

95.00%95.00% 0.314 0.314 3.946 3.946 5.813 5.813 16.837 16.837 28.256 28.256

MeanMean 0.002 0.002 0.091 0.091 0.205 0.205 2.126 2.126 12.078 12.078

S.D.(%)S.D.(%) 0.193 0.193 2.454 2.454 3.658 3.658 11.529 11.529 24.521 24.521

Actual distributionActual distribution


TotalTotal 12,117 12,117 7,541 7,541 5,330 5,330 5,205 5,205 387 387

DefaultDefault 2 2 12 12 19 19 208 208 93 93


12,115 12,115 7,529 7,529 5,311 5,311 4,997 4,997 294 294

0.03%0.03% 3.64 3.64 2.26 2.26 1.60 1.60 1.56 1.56 0.12 0.12

1.00%1.00% 121.17 121.17 75.41 75.41 53.30 53.30 52.05 52.05 3.87 3.87

0.50%0.50% 60.59 60.59 37.71 37.71 266.5 266.5 260.3260.3 1.94 1.94

Actual distributionActual distribution


99.97%99.97% 0*0* 74.909 74.909 91.795 91.795 89.974 89.974 83.922 83.922

99.00%99.00% 0*0* 0*0* 0*0* 72.874 72.874 72.922 72.922

95.00%95.00% 0*0* 0*0* 0*0* 0*0* 62.922 62.922

MeanMean 0.002 0.002 0.091 0.091 0.205 0.205 2.126 2.126 12.078 12.078

S.D.(%)S.D.(%) 0.193 0.193 2.454 2.454 3.658 3.658 11.529 11.529 24.521 24.521


We got the same result.We got the same result.

The problem of heterogeneity dose The problem of heterogeneity dose exist.exist.

Bucket 2 is lack of granularity.Bucket 2 is lack of granularity.

Summary & ProposalSummary & Proposal

This paper has examined two aspects This paper has examined two aspects of stage 1 of the BIS’s proposed refoof stage 1 of the BIS’s proposed reforms:rms:

1.1. Relying on traditional agency ratings Relying on traditional agency ratings could produce cyclically lagging capitcould produce cyclically lagging capital requirements, resulting in an enhaal requirements, resulting in an enhanced degree of instability in the banknced degree of instability in the banking and financial system.ing and financial system.

2.2. The current bucketing proposal lacks The current bucketing proposal lacks a sufficient degree of granularity.a sufficient degree of granularity.


A revised bucket proposalA revised bucket proposal


A revised bucket proposalA revised bucket proposal

1.1. The choice of 10% for bucket 1 is arbitrary. The choice of 10% for bucket 1 is arbitrary. Although the results clearly show that no Although the results clearly show that no defaults have actually taken place, Altman defaults have actually taken place, Altman thought it’s weird to let the weighting be thought it’s weird to let the weighting be zero.zero.

2.2. Use a ratio of about 3.33 to 1 when Use a ratio of about 3.33 to 1 when comparing the BB/B bucket with the A/BBB comparing the BB/B bucket with the A/BBB bucket. This is about the midpoint between bucket. This is about the midpoint between the normal distribution and actual the normal distribution and actual distribution’s results.distribution’s results.

An analysis and critique of the BIS proposal on Capital Adequacy and Ratings (#10) 林耕賢...

Documents

Transcript of An analysis and critique of the BIS proposal on Capital Adequacy and Ratings (#10) 林耕賢...