[...]... of the concrete credit risk measurement and credit portfolio modeling as a basis of improving the management of credit risk Thus, in the following there will be a short introduction on individual risk parameters and risk measures in a credit portfolio context, and a detailed explanation of the framework underlying the IRB Approach 2.2 2.2.1 Measures of Risk in Credit Portfolios Risk Parameters and Expected... financial institutions, such as Bear 8 M Hibbeln, Risk Management in Credit Portfolios, Contributions to Economics, DOI 10.1007/978-3-7908-2607-4_2, # Springer-Verlag Berlin Heidelberg 2010 5 6 2 Credit Risk Measurement in the Context of Basel II this background, the state is interested in a regulation of the financial system in order to reduce the probability of bank runs and the systemic risk. 12 The... is important that financial institutions and market participants also focus on the Pillar 2 objective of managing enterprise risk, including concentration risk, rigorously and comprehensively”.5 The existing literature regarding concentration risk in credit portfolios mainly consists of some documents from banking supervisors, empirical studies on the effect of concentration risk on bank performance,... changes in the “Kreditwesengesetz” (KWG) and the “Großkredit- und Millionenkreditverordnung” (GroMiKV), as well as the “Mindestanforderungen an das Risikomanagement” (MaRisk), implementing the demands of the Pillar 2 These regulations came into effect on 01-01-2007 As this study deals with credit risk management, only this type of risk will be considered in the following In contrast to Basel I, the minimum... only These refer to a proper assessment of individual risks – beyond the demands of Pillar 1 – and sound internal processes in risk management Important risk types that are not captured by Pillar 1 are concentration risks, which are the object of investigation during this study, interest rate risks, and liquidity risks Pillar 3 shall improve the market discipline through an enhanced disclosure by banks,... described in the subsequent Sect 2.2.1.16 In this context, it should be noticed that the IRB Approach is not only a regulatory set of rules but the underlying framework often serves as a common fundament in banking practice and for ongoing research in credit risk modeling with several improvements and applications.17 Against this background, it is useful to have a deeper understanding of the concrete credit. .. under Pillar 1 In Chap 3, risk concentrations in credit portfolios are discussed Firstly, different types of concentration risk are described In Sect 3.2, it is argued that banks often consciously accept concentrations in their portfolios in order to gain higher returns from specialization, but they should have an additional capital buffer to survive economic downturns The measurement and management of... type of concentration risk occurs if the weight of single credits in the portfolio does not converge to zero; thus, the individual risk component cannot be completely diversified The main research questions on name concentrations that are considered in this chapter are: l l In which cases are the assumptions of the ASRF framework critical concerning the credit portfolio size? In which cases are currently... concentrated in a specific industry sector or geographical location Concerning sector concentrations, the main research questions that are analyzed in this chapter are: l l How can existing approaches for measuring sector concentration risk be modified and adjusted to be consistent with the Basel framework? Is the risk measure Value at Risk problematic when dealing with sector concentration risk? Which... very often applied in practice and in the literature The results of these analyses are subsumed in Sect 5.4 Chapter 2 Credit Risk Measurement in the Context of Basel II 2.1 Banking Supervision and Basel II During the last decades, there has been a lot of effort spent on improving and extending the regulation of financial institutions There are several reasons for a regulation of these institutions, which . Measuring Credit Risk in Heterogeneous Portfolios with the ASRF Model of Gordy 35 2.7 Measuring Credit Risk Within the IRB Approach of Basel II 39 2.8 Appendix 43 3 Concentration Risk in Credit Portfolios. determining risk concentrations. All in all, this book deals with a relevant topic within the framework of credit risk management. In this context the author succeeds impressively in connecting theoretical. volumes: http://www.springer.com/series/1262 Martin Hibbeln Risk Management in Credit Portfolios Concentration Risk and Basel II Dr. Martin Hibbeln Technische Universita ¨ t Braunschweig Institute of Finance Carl-Friedrich-Gauß-Faculty Abt-Jerusalem-Str.