In a competitive world of symmetric information
and costless enforcement, credit contracts
could be written conditional on borrower behavior.
Borrowers would then have access
to loans under any interest rate-collateral
combination that would yield lenders a zero
expected profit. However, as a large literature
has shown, information asymmetries
and enforcement costs make such conditional
contracting infeasible and restrict the set of
available contracts, eliminating as incentive incompatible
high interest rate, low collateral
This chapter describe the background and corporate use of the following international financial markets: foreign exchange market, international money market, international credit market, international bond market, international stock markets.
Letters of Credit are a time-tested instrument
of int e rnat ional t rade . They have been used
to expand markets for goods and
services and to facilitate a variety of financial
transactions, either as a method of payment or as
a credit enhancement, within as well as across the
borders of sovereign states.
The credit derivatives market is booming and, for the first time, expanding into the banking sector which previously has had very little exposure to quantitative modeling. This phenomenon has forced a large number of professionals to confront this issue for the first time. Credit Derivatives Pricing Models provides an extremely comprehensive overview of the most current areas in credit risk modeling as applied to the pricing of credit derivatives.
Iam happy to present the second English edition of Money,
Bank Credit, and Economic Cycles. Its appearance is particularly
timely, given that the severe financial crisis and resulting
worldwide economic recession I have been forecasting,
since the first edition of this book came out ten years ago, are
now unleashing their fury.
In banking, especially in risk management, portfolio management, and
structured finance, solid quantitative know-how becomes more and
more important. We had a two-fold intention when writing this book:
First, this book is designed to help mathematicians and physicists
leaving the academic world and starting a profession as risk or portfolio
managers to get quick access to the world of credit risk management.
Second, our book is aimed at being helpful to risk managers looking
for a more quantitative approach to credit risk....
The past year has been good for doing business in 58 of
the 145 Doing Business sample countries. They simplified
some aspect of business regulations, strengthened property
rights or made it easier for businesses to raise financing.
Slovakia was the leading reformer: introducing
flexible working hours, easing the hiring of first-time
workers, opening a private credit registry, cutting the
time to start a business in half and, thanks to a
new collateral law, reducing the time to recover debt by
three-quarters. Colombia was the runner-up.
Like its sister book, Managing Financial Risk (which deals with market
risk), this book evolved from a set of lecture notes. (My colleagues at
Rutter Associates and I have been teaching classes on credit portfolio management
to bankers and regulators for almost four years now.) When lecture
notes get mature enough that they start curling up on the edges, the
instructor is faced with a choice—either throw them out or turn them into
a book. I chose the latter.
On September 15, 2008, Lehman Brothers, the fourth-largest U.S. investment
bank, filed for bankruptcy, marking the largest bankruptcy in U.S. history and
the burst of the U.S. subprime mortgage crisis. Concerns about the soundness of
U.S. credit and financial markets led to tightened global credit markets around
the world. Spreads skyrocketed. International trade plummeted by double digits,
as figure O.1 illustrates. Banks reportedly could not meet customer demand to
finance international trade operations, leaving a trade finance “gap” estimated at
around $25 billion.
Consumer financing have become increasingly important in the private sector of Pakistan for the last two decades. With the new reforms in the banking sector, the marketing of financial products has become very competitive, creating a needfor strategizing the marketing efforts. This study investigates the shift of Pakistani consumers towards the use of plastic money, with emphasis on credit cards. A survey of consumers holding (at least) one or no credit card were used for data collection.
In banking, especially in risk management, portfolio management, and structured finance, solid quantitative know-how becomes more and more important. We had a two-fold intention when writing this book: First, this book is designed to help mathematicians and physicists leaving the academic world and starting a profession as risk or portfolio managers to get quick access to the world of credit risk management.
China’s rural financial system has changed dramatically over the last twenty five years, but rural
financial reforms were lagging behind changes in the real economy and required further economic
transition. As in other countries moving towards a market economy, the reform of banking systems
and the creation of efficient financial markets in China continues to be among the most difficult
reform issues. Poorly functioning official financial markets push rural population to rely on informal
This paper analyzes the cyclical effects of bank capital requirements in a simple model with credit market imperfections. Lending rates are set as a premium over the cost of borrowing from the central bank, with the premium itself depending on collateral. Basel I- and Basel II-type regulatory regimes are deﬁned and a capital channel is introduced through a signaling effect of capital buffers. The macroeconomic effects of
This category features the broadest application of the use of credit ratings. Member
authorities from every jurisdiction submitting responses indicated that their LRSPs contained
provisions using credit ratings for the purpose of determining net or regulatory capital, and
more LRSPs are applied to capital requirements than to any other category of use. Credit
ratings were generally used in those LRSPs as a means of mapping credit risks to capital
charges or risk weights.
PDi and LDi are aimed at testing the incidence of adverse selection: whether firms in
poor financial health and/or facing liquidity constraints are more likely to seek and get access
to bank credit. In the case of the liquidity dummy there is no ambiguity about the causality
and the interpretation of the results in terms of adverse selection. However, in the case of the
profitability dummy, again we cannot fully eliminate the endogeneity problem because – as
mentioned before – firm’s profit/loss position may affect also bank’s decision to extend the
ABSTRACT Vietnam’s foreign exchange (forex) market has remained relatively poorly developed despite more than two decades of general reform throughout the economy. This paper adopts a microstructure approach to the analysis of the root-causes underlying the operational deficiencies of this market. The analysis suggests that the authorities have tended to follow a de facto adjustable peg exchange rate regime which, in turn, has acted as a retardant to the development of the country’s forex market. Consequently, market signals have become increasingly non-transparent.
The issue of the equilibrium level of credit in the economy is addressed in the liter-
ature from di®erent perspectives. Several papers use theoretical models to analyze the
equilibrium level of credit over business cycles by identifying phases of credit rationing
or credit booms (Kiyotaki and Moore, 1997; Azariadis and Smith, 1998; Lorenzoni,
2008). In the similar spirit, DSGE models have been used recently to analyze the
asymmetry in the behavior of borrowers and lenders in reaction to structural, and in
particular ¯nancial shocks (Iacoviello, 2005; Gerali et al., 2010)....
There are many misconceptions about credit scores out there. There are customers who believe that they don't have a credit score and many customers who think that their credit scores just don't really matter. These sorts of misconceptions can hurt your chances at some jobs, at good interest rates, and even your chances of getting some apartments. The truth is, of you have a bank account and bills, then you have a credit score, and your credit score matters more than you might think. Your credit score may be called many things, including a credit risk rating, a FICO score,...
We model the impact of bank mergers on loan competition, reserve holdings,
and aggregate liquidity. A merger changes the distribution of liquidity
shocks and creates an internal money market, leading to financial cost efficiencies
and more precise estimates of liquidity needs. The merged banks
may increase their reserve holdings through an internalization effect or decrease
them because of a diversification effect. The merger also affects loan
market competition, which in turn modifies the distribution of bank sizes
and aggregate liquidity needs.