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

    EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis

    The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.

    November 28, 2023 WebPage Regulatory News

    EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules

    The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.

    October 31, 2023 WebPage Regulatory News

    BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks

    As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.

    October 19, 2023 WebPage Regulatory News

    BCBS and EBA Publish Results of Basel III Monitoring Exercise

    The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.

    October 18, 2023 WebPage Regulatory News

    PRA Updates Timeline for Final Basel III Rules, Issues Other Updates

    The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.

    October 18, 2023 WebPage Regulatory News

    US Treasury Sets Out Principles for Net-Zero Financing

    The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.

    October 17, 2023 WebPage Regulatory News

    EC Launches Survey on G7 Principles on Generative AI

    The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.

    October 14, 2023 WebPage Regulatory News

    ISSB Sustainability Standards Expected to Become Global Baseline

    The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.

    September 18, 2023 WebPage Regulatory News

    IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance

    Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.

    September 18, 2023 WebPage Regulatory News

    BCBS Assesses NSFR and Large Exposures Rules in US

    The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.

    September 14, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8938