Reviewing Pillar 2 regulations: credit concentration risk

J 2019

Reviewing Pillar 2 regulations: credit concentration risk

PROROKOWSKI, Lukasz, Hubert PROROKOWSKI a Georgette BONGFEN NTEH

Základní údaje

Originální název

Reviewing Pillar 2 regulations: credit concentration risk

Autoři

PROROKOWSKI, Lukasz (616 Polsko, garant, domácí), Hubert PROROKOWSKI a Georgette BONGFEN NTEH

Vydání

Journal of Financial Regulation and Compliance, Emerald Publishing, 2019, 1358-1988

Další údaje

Jazyk

angličtina

Typ výsledku

Článek v odborném periodiku

Obor

50206 Finance

Stát vydavatele

Velká Británie a Severní Irsko

Utajení

není předmětem státního či obchodního tajemství

Odkazy

URL

Kód RIV

RIV/00216224:14560/19:00113042

Organizační jednotka

Ekonomicko-správní fakulta

DOI

http://dx.doi.org/10.1108/JFRC-02-2018-0033

UT WoS

000475790100002

Klíčová slova anglicky

Capital adequacy; Credit concentration risk; Pillar 2; PRA; Regulatory reporting

Příznaky

Mezinárodní význam, Recenzováno

Změněno: 27. 3. 2020 14:47, Mgr. Daniela Marcollová

Anotace

V originále

Purpose This paper aims to analyse the recent changes to the Pillar 2 regulatory-prescribed methodologies to classify and calculate credit concentration risk. Focussing on the Prudential Regulation Authority's (PRA) methodologies, the paper tests the susceptibility to bias of the Herfindahl-Hirscham Index (HHI). The empirical tests serve to assess the assumption that the regulatory classification of exposures within the geographical concentration is subject to potential misuse that would undermine the PRA's objective of obtaining risk sensitivity and improved banking competition. Design/methodology/approach Using the credit exposure data from three global banks, the HHI methodology is applied to the portfolio of geographically classified exposures, replicating the regulatory exercise of reporting credit concentration risk under Pillar 2. In doing so, the validity of the aforementioned assumption is tested by simulating the PRA's Pillar 2 regulatory submission exercise with different scenarios, under which the credit exposures are assigned to different geographical regions. Findings The paper empirically shows that changing the geographical mapping of the Eastern European EU member states can result in a substantial reduction of the Pillar 2 credit concentration risk capital add-on. These empirical findings hold only for the banks with large exposures to Eastern Europe and Central Asia. The paper reports no material impact for the well-diversified credit portfolios of global banks. Originality/value This paper reviews the PRA-prescribed methodologies and the Pillar 2 regulatory guidance for calculating the capital add-on for the single name, sector and geographical credit concentration risk. In doing so, this paper becomes the first to test the assumptions that the regulatory guidance around the geographical breakdown of credit exposures is subject to potential abuse because of the ambiguity of the regulations.

Citovat

PROROKOWSKI, Lukasz, Hubert PROROKOWSKI a Georgette BONGFEN NTEH. Reviewing Pillar 2 regulations: credit concentration risk. Journal of Financial Regulation and Compliance. Emerald Publishing, 2019, roč. 27, č. 3, s. 280-302. ISSN 1358-1988. Dostupné z: https://dx.doi.org/10.1108/JFRC-02-2018-0033.

@article{1626679,
   author = {Prorokowski, Lukasz and Prorokowski, Hubert and Bongfen Nteh, Georgette},
   article_number = {3},
   doi = {http://dx.doi.org/10.1108/JFRC-02-2018-0033},
   keywords = {Capital adequacy; Credit concentration risk; Pillar 2; PRA; Regulatory reporting},
   language = {eng},
   issn = {1358-1988},
   journal = {Journal of Financial Regulation and Compliance},
   title = {Reviewing Pillar 2 regulations: credit concentration risk},
   url = {https://www.emerald.com/insight/content/doi/10.1108/JFRC-02-2018-0033/full/html},
   volume = {27},
   year = {2019}
}

TY  - JOUR
ID  - 1626679
AU  - Prorokowski, Lukasz - Prorokowski, Hubert - Bongfen Nteh, Georgette
PY  - 2019
TI  - Reviewing Pillar 2 regulations: credit concentration risk
JF  - Journal of Financial Regulation and Compliance
VL  - 27
IS  - 3
SP  - 280-302
EP  - 280-302
PB  - Emerald Publishing
SN  - 13581988
KW  - Capital adequacy
KW  - Credit concentration risk
KW  - Pillar 2
KW  - PRA
KW  - Regulatory reporting
UR  - https://www.emerald.com/insight/content/doi/10.1108/JFRC-02-2018-0033/full/html
L2  - https://www.emerald.com/insight/content/doi/10.1108/JFRC-02-2018-0033/full/html
N2  - Purpose This paper aims to analyse the recent changes to the Pillar 2 regulatory-prescribed methodologies to classify and calculate credit concentration risk. Focussing on the Prudential Regulation Authority's (PRA) methodologies, the paper tests the susceptibility to bias of the Herfindahl-Hirscham Index (HHI). The empirical tests serve to assess the assumption that the regulatory classification of exposures within the geographical concentration is subject to potential misuse that would undermine the PRA's objective of obtaining risk sensitivity and improved banking competition. Design/methodology/approach Using the credit exposure data from three global banks, the HHI methodology is applied to the portfolio of geographically classified exposures, replicating the regulatory exercise of reporting credit concentration risk under Pillar 2. In doing so, the validity of the aforementioned assumption is tested by simulating the PRA's Pillar 2 regulatory submission exercise with different scenarios, under which the credit exposures are assigned to different geographical regions. Findings The paper empirically shows that changing the geographical mapping of the Eastern European EU member states can result in a substantial reduction of the Pillar 2 credit concentration risk capital add-on. These empirical findings hold only for the banks with large exposures to Eastern Europe and Central Asia. The paper reports no material impact for the well-diversified credit portfolios of global banks. Originality/value This paper reviews the PRA-prescribed methodologies and the Pillar 2 regulatory guidance for calculating the capital add-on for the single name, sector and geographical credit concentration risk. In doing so, this paper becomes the first to test the assumptions that the regulatory guidance around the geographical breakdown of credit exposures is subject to potential abuse because of the ambiguity of the regulations.
ER  -

PROROKOWSKI, Lukasz, Hubert PROROKOWSKI a Georgette BONGFEN NTEH. Reviewing Pillar 2 regulations: credit concentration risk. \textit{Journal of Financial Regulation and Compliance}. Emerald Publishing, 2019, roč.~27, č.~3, s.~280-302. ISSN~1358-1988. Dostupné z: https://dx.doi.org/10.1108/JFRC-02-2018-0033.

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