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Rima Turk-Ariss

IRB banks. More recent evidence by Begley, Purnanandam, and Zeng (forthcoming) using 41 banks in the U.S., Canada, and Europe, indicates that bank risk measures become less informative precisely when banks are approaching financial distress. Other studies analyze banks’ risk assessment in a single country context. For the U.S., Barakova and Palvia (2014) find that internally generated risk weights are determined mostly by portfolio risk. But Plosser and Sanos (2014) , who estimate bank biases at the credit level, report that low-capital banks have low risk

Rima Turk-Ariss
Rima Turk-Ariss
Concerns about excessive variability in bank risk weights have prompted their review by regulators. This paper provides prima facie evidence on the extent of risk weight heterogeneity across broad asset classes and by country of counterparty for major banks in the European Union using internal models. It also finds that corporate risk weights are sensitive to the riskiness of an average representative firm, but not to a market indicator of a firm’s probablity of default. Under plausible yet severe hypothetical scenarios for harmonized risk weights, counterfactual capital ratios would decline significantly for some banks, but they would not experience a shortfall relative to Basel III’s minimum requirements. This, however, does not preclude falling short of meeting additional national supervisory capital requirements.
Arnaud Jobert, Ms. Janet Kong, and Mr. Jorge A Chan-Lau

), equity prices provide useful information on bank failure ( Elmer and Fissel, 2001 ; and Gunther and others, 2001 ), and that both equity prices and bond yields explain ratings well ( Krainer and Lopez, 2003 ). For European banks, risk measures constructed combining information from equity prices and balance-sheet data and using the model of corporate debt proposed by Merton (1974) predict bank failure up to 18 months in advance ( Groppe and others, 2002 ). Also, for Asian banks during the East Asian crisis in 1997, stock-market-based indicators reacted faster than

Arnaud Jobert, Ms. Janet Kong, and Mr. Jorge A Chan-Lau
We measure bank vulnerability in emerging markets using the distance-to-default, a risk-neutral indicator based on Merton's (1974) structural model of credit risk. The indicator is estimated using equity prices and balance-sheet data for 38 banks in 14 emerging market countries. Results show it can predict a bank's credit deterioration up to nine months in advance. The distance-to-default, hence, may prove useful for bank monitoring purposes.
Mr. Luc Laeven, Mr. Lev Ratnovski, and Mr. Hui Tong
The proposed SDN documents the evolution of bank size and activities over the past 20 years. It discusses whether this evolution can be explained by economies of scale or “too big to fail” subsidies. The paper then presents evidence on the extent to which bank size and market-based activities contribute to systemic risk. The paper concludes with policy messages in the area of capital regulation and activity restrictions to reduce the systemic risk posed by large banks. The analysis of the paper complements earlier Fund work, including SDN 13/04 and the recent GFSR chapter on “too big to fail” subsidies, and its policy message is in line with this earlier work.
Mr. Luc Laeven, Mr. Lev Ratnovski, and Mr. Hui Tong

these dimensions may be insufficiently addressed by micro-prudential regulation, which focuses on individual bank risk. Measures targeting bank activities and complexity may need to be undertaken in the context of a wider macro-prudential framework. Second, the findings shed light on the debate over whether there may be “too much finance.” The paper finds that larger financial systems have more large banks. Accordingly, to reduce the systemic risk in large financial systems, policy needs to take into account the disproportional role of large banks. This financial

Mr. Giovanni Dell'Ariccia, Mr. Gianni De Nicolo, Mr. Luc Laeven, and Mr. Fabian Valencia
This paper contributes to the current debate on what role financial stability considerations should play in monetary policy decision and how best to integrate macro-prudential and monetary policy frameworks. The paper broadly supports the view that monetary policy easing induces greater risk-taking by banks but also shows that the relationship between real interest rates and banking risk is more complex. Ultimately, it depends on how much skin in the game banks have. The central message of the paper is broadly complementary to those in the recent MCM board paper “Central Banking Lessons from the Crisis.”
Mr. Giovanni Dell'Ariccia, Mr. Gianni De Nicolo, Mr. Luc Laeven, and Mr. Fabian Valencia

Lending Survey Regression lines depict simple OLS regressions of ex ante bank risk measures and the real federal funds rate for all banks. The dependent variables are the weighted average relative lending spread over the effective federal funds rate and the weighted average risk rating, respectively. Both dependent variables are increasing in risk. Risk measures are based on quarterly data over the period 1997:Q2 to 2008:Q4 and are taken from the U.S. Federal Reserve Bank’s Terms of Business Lending Survey . The simple patterns plotted in the figure offer

International Monetary Fund. External Relations Dept.
IMF work agenda; IMF exchange rate advice; Asia's trade pacts; Central Asia: economic cooperation; Cameroon after debt relief; spread of Austrian banks; conference on financial soundness indicators; Caruana on shifting roles in financial globalization.