Foreign Related Studies
Rajagopal (1996) made an attempt to overview the bank’s risk management and suggests a model for pricing the products based on credit risk assessment of the borrowers. He concluded that good risk management is good banking, which ultimately leads to profitable survival of the institution. A proper approach to risk identification, measurement and control will safeguard the interests of banking institution in long run.
Froot and Stein (1998) found that credit risk management through active loan purchase and sales activity affects banks’ investments in risky loans. Banks that purchase and sell loans hold more risky loans (Credit Risk and Loss loans and commercial real estate loans) as a percentage of the balance sheet than other banks. Again, these results are especially striking because banks that manage their credit risk (by buying and selling loans) hold more risky loans than banks that merely sell loans (but don’t buy them) or banks that merely buy loans (but don’t sell them).
Treacy and Carey (1998) examined the credit risk rating mechanism at US Banks. The paper highlighted the architecture of Bank Internal Rating System and Operating Design of rating system and made a comparison of bank system relative to the rating agency system. They concluded that banks internal rating system helps in managing credit risk, profitability analysis and product pricing.
Duffee and Zhou (1999) model the effects on banks due to the introduction of a market for credit derivatives; particularly, credit-default swaps. Their paper examined that a bank can use swaps to temporarily transfer credit risks of their loans to others, reducing the likelihood that defaulting loans trigger the bank’s financial distress. They concluded that the introduction of a credit derivatives market is not desirable because it can cause other markets for loan risk-sharing to break down.
Ferguson (2001) analyzed the models and judgments related to credit risk management. The author concluded
Froot and Stein (1998) found that credit risk management through active loan purchase and sales activity affects banks’ investments in risky loans. Banks that purchase and sell loans hold more risky loans (Credit Risk and Loss loans and commercial real estate loans) as a percentage of the balance sheet than other banks. Again, these results are especially striking because banks that manage their credit risk (by buying and selling loans) hold more risky loans than banks that merely sell loans (but don’t buy them) or banks that merely buy loans (but don’t sell them).
Treacy and Carey (1998) examined the credit risk rating mechanism at US Banks. The paper highlighted the architecture of Bank Internal Rating System and Operating Design of rating system and made a comparison of bank system relative to the rating agency system. They concluded that banks internal rating system helps in managing credit risk, profitability analysis and product pricing.
Duffee and Zhou (1999) model the effects on banks due to the introduction of a market for credit derivatives; particularly, credit-default swaps. Their paper examined that a bank can use swaps to temporarily transfer credit risks of their loans to others, reducing the likelihood that defaulting loans trigger the bank’s financial distress. They concluded that the introduction of a credit derivatives market is not desirable because it can cause other markets for loan risk-sharing to break down.
Ferguson (2001) analyzed the models and judgments related to credit risk management. The author concluded