Featured Product

    MNB Discusses Approach to Modeling Corporate Probability of Default

    September 30, 2020

    MNB published the September issue of the Financial and Economic Review. This issue of the journal includes papers that discuss a possible supervisory benchmark model of the probability of default of corporations, the operational risk management of credit institutions, and the challenges of mortgage bank refinancing. Also included are papers on the general characteristics and impact of the COVID-19 crises in the foreign-exchange forward market of Hungary and the transformation of global supply chains in the manufacturing industry as a result of COVID-19 pandemic.

    The paper on modeling corporate probability of default shows how it is possible to estimate a probability of default for corporate portfolios, which is based on large banks’ corporate default rate data series and available corporate financial data. It uses a harmonized methodology that factors in differences between the credit quality ratings of various customers and is suitable for the supervisor’s calculation of the capital requirement for any given bank. Nonetheless, there may also be other factors in addition to individual financial data that may affect credit quality; identifying these may be one of the objectives of benchmark model development.

    The paper on principles of proportionality in operational risk management of credit institutions provides assistance in the proper application of the principle of proportionality, although it cannot undertake to resolve the dilemmas related to the principles of proportionality. In addition, it contributes to the improvement of the operational risk framework, thus reducing the range of continuously growing natural risks, based on the analysis of the data of Hungarian credit institutions, the analysis of the EU regulatory and Hungarian supervisory requirements, and an assessment of the practices of credit institutions. The author of the paper concludes that the introduction of forward-looking instruments for smaller banks and the harmonization of methodologies for large institutions may ensure that the sector might be prepared to identify and manage its operational risks.

    The paper on mortgage bank refinancing summarizes the operational models of mortgage banks and the new EU mortgage bond regulations. The authors analyze the most important challenges that refinancing mortgage banks are currently facing in Hungary, with regard to the imminent implementation of the European covered bond directive, passed in December 2019. These are basically grouped into three subjects: the characteristics of refinancing loans do not support more efficient portfolio refinancing; the refinancing loan guarantee scheme does not ensure fulfilment of the conditions laid down in other legislation in case of statutory portfolio assignment; and overcollateralization in the current purely refinancing model cannot be achieved from ordinary collateral. On this basis, the authors propose the development of an alternative regulation for “refinancing mortgage banks,” while fully maintaining the current operation. With this alternative regulation, a revised collateral system would help to solve the problems and develop a more efficient mortgage loan structure.

     

    Related Links

    Keywords: Europe, Hungary, Banking, Credit Risk, Probability of Default, Operational Risk, Proportionality, Covered Bond Directive, Covered Bond, Refinancing, Mortgage Loans, MNB

    Related Articles
    News

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    EP Reaches Agreement on Corporate Sustainability Reporting Directive

    The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).

    June 21, 2022 WebPage Regulatory News
    News

    PRA Consults on Model Risk Management Principles for Banks

    The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.

    June 21, 2022 WebPage Regulatory News
    News

    EC Regulation Amends Standards for Calculating Credit Risk Adjustments

    The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    News

    UK Authorities Issue Regulatory and Reporting Updates for Banks

    The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.

    June 15, 2022 WebPage Regulatory News
    News

    BCBS Issues Climate Risk Principles while HKMA Expresses Its Support

    The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.

    June 15, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8286