Utilización de las centrales de información de riesgo en los informes de estabilidad financiera

Transcription

1 Utilización de las centrales de información de riesgo en los informes de estabilidad financiera Jesús Saurina Director. Financial Stability Department Banco de España BANCO CENTRAL DE BOLIVIA/CEMLA SEMINAR La Paz 7 de Octubre de 2008

2 Caveat The views expressed here are those of the author and not necessarily those of the Banco de España or the Eurosystem 2

3 Outline Introduction Financial Stability Review Production Structure Goals Discussion Credit Register Description Utilization for FSR 3

4 Introduction- Mandate and concept of FS The Bank of Spain has been assigned, among its duties, to promote the stability of the financial system. Law 13/1994 of autonomy of the Bank of Spain, Art. 7, 5b) There is no a single definition of financial stability, but We have learned that The effects of instability are severe for the real economy. The financial stability requires, among other elements: appropriate institutional framework, appropriate macro policies, markets infrastructures, prudential regulation and supervision, etc. Financial stability connects the analysis of each particular institution (micro level) with the study of the behaviour of the whole financial system (macro level). 4

5 Introduction- Financial Stability Department The overall objective is to promote the financial stability Produce the Financial Stability Report (FSR) Regular and specific notes for the decision bodies of the Bank of Spain Regular: activity, doubtful asset ratios and profit and loss performance Specific: for instance, impact of the new accounting regulation Policy design Loan loss provisions and capital requirements Cost-benefit analysis of banking regulation Research Empirical and regulatory policy orientation Bank topics (risks, competition, regulation, financial integration) Participation in working groups dependent of international institutions BSC (BCE), RTF (BCBS), 5

6 The Financial Stability Report 6

7 The Financial Stability Report: general principles Spain: the analysis is performed from the perspective of the stability of the Spanish financial system The Spanish financial system presents a high degree of bancarisation: the main target of the analysis are, therefore, the deposit institutions The assessment is considered in aggregate terms, but also takes into account the relative position of each institution through dispersion analysis Risk analysis is key Shocks that are improbable, but possible, and of a high impact Once the risks are identified, resilience is analysed Profitability Solvency Analysis at consolidated level, but not only Importance of research 7

8 The Financial Stability Report: production The Directorate General (DG) of Regulation, through the Department of FS, is in charge of preparing much of the FSR, as well as its coordination Contributions are received from other General Directorates Research Department Macroeconomic outlook of Spain and the euro area International International macroeconomic and financial markets outlook Supervision Qualitative assessment of risks and resilience Operations Markets liquidity and infrastructures In fact, there is an Editorial Committee Chairman: DG of Regulation One member from each DG Secretariat: Director of the FS Department 8

9 The Financial Stability Report: organization The FSR is published twice a year: May and November. The process: Editorial Committee First Draft Editorial Committee Executive Commission Governing Council 9

10 The Financial Stability Report: structure The FSR is organised in three chapters Chapter I: Macroeconomics risks and financial markets Chapter II: Deposit institutions and other participants in financial markets Deposit institutions Banking risks Profitability Solvency Other financial market participants Insurance companies Other financial intermediaries Chapter III: Infrastructures 10

11 The Financial Stability Report: structure Chapter I Macroeconomic risks and financial market Information on spreads and stock markets Risk indices Credit Default Swaps Stock price volatility Macroeconomic information Economic growth 11

12 The Financial Stability Report: structure Chapter II Deposit institutions and others Credit risk: it is the most important Deposit institutions: credit policy Analysis of its consolidated balance sheet Credit growth (total, sectors, activities, ) Doubtful assets and doubtful assets ratios Financial assets abroad Liquidity and market risks Debt, stock and exchange rate markets. Markets infrastructures Institutions: liquidity gap, assets and liabilities by degree of liquidity Profitability Solvency 12

13 The Financial Stability Report: structure Chapter II Deposit institutions and others Other participants in financial markets Insurance companies Collective investment institutions Private equity 13

14 The Financial Stability Report: structure Chapter III Infrastructures Market infrastructures Clearing and settlement systems Regulatory infrastructures Accounting regulations Prudential regulation Monetary policy instruments Payment systems 14

15 The Financial Stability Report : goals Contribute to promote the financial stability Provide the Bank of Spain assessment on financial stability International comparison A vehicle to dialog with banks on regulatory matters Instrument to send messages to institutions Instrument to educate financial services customers Simple and clear analysis Research 15

16 Discussion Ownership Cooperation Macro perspective versus micro bank level Financial Stability Report/Financial Stability Department To enhance financial stability is the main goal of a FSR Role of research 16

17 The Spanish Credit Register (CIR) 17

18 Credit Register information Low threshold: euros Comprehensive coverage: all credit institutions Population of loans to firms and mortgages Information about default, collateral, maturity, instrument, amount, industry, province No information on interest rates 18

19 Use of Credit Register Direct use Main purpose of Spanish Credit Register (CIR) Support inspectors/examiners work Extract information from CIR Sampling for planning visits Monitoring of borrowers (exposures and quality) Indirect use Financial stability analysis/regulatory policy/research All the three filter into the Financial Stability Report 19

20 Financial stability usage Analysis of credit risk Credit lines Collateral Relationship lending Lending cycle and risk taking Dynamic provisions Monetary policy and risk taking Impact assessment Procyclicality Mortgages Corporate loans Calibration of alternative proposals 20

21 NPL (long term perspective) / Vintages (short term) DOUBTFUL ASSETS RATIO. DEFAULT RATE CURVES. INDIVIDUALS' MORTGAGES. FIRMS HOUSEHOLDS % %

22 Stress testing S TRES S TES T EL (2006) EL (2007) EL (2007) STRESS VaR (2006) VaR (2007) VaR (2007) STRESS 0 2 0, ,000 60, ,0 0 0 m 22

23 Credit lines CIR contains information on amount drawn and undrawn Usage ratio = drawn / (drawn + undrawn) Jiménez, Lopez and Saurina (RFS 2009) 23

24 Credit lines Differences in the usage ratio depending on the quality of the firm No. of years from default Defaulted credit line. Median Non-defaulted credit line. Median 24

25 Collateral Theory: collateral vs adverse selection and moral hazard Willingness to post collateral signals good credit quality Collateral posted increases incentives to repay the loan Empirical evidence: Jiménez, Salas and Saurina (JFE 2006) Collateral asked for riskier loans 25

26 Relationship lending It is good for a bank AND a borrower to have a long term relationship Less of a capture and much more on a mutually productive relationship A. YEAR ON YEAR RATE OF CHANGE IN CREDIT BY YEARS OF RETATIONSHIP WITH INSTITUTIONS % NEW LESS THAN 1 YEAR FROM 1 TO 2 YEARS MORE THAN 2 YEARS MORE THAN 10 YEARS TOTAL J un-03 J un-04 J un-05 J un-06 J un-07 J un-08 B. YEAR ON YEAR RATE OF CHANGE IN CREDIT BY NUMBERS OF BANKING RELATIONSHIPS % ONE TWO THREE OR FOUR BETWEEN 5 AND 10 MORE THAN 10 TOTAL J un-03 J un-04 J un-05 J un-06 J un-07 J un-08 26

27 Lending cycle and risk taking Banks lending mistakes are more prevalent during upturns Borrowers and lenders are overconfident about investment projects (financing NPV<0 projects) Banks over optimism implies lower credit policy standards During recessions, banks suddenly turn very conservative and tighten credit standards (well beyond NPV>0) Lending cycle with impact on the real economy 27

28 Lending cycle and risk taking Jiménez and Saurina (IJCB, 2006) Relation between credit growth and problem loans at bank level? Evidence of a direct, although lagged, relationship between credit growth and credit risk (a rapid increase in loan portfolios is positively associated with an increase in non-performing loan ratios later on) Analysis of default probabilities of individual loans: Loans granted during boom periods have a higher PD than those granted during slow credit growth periods Impact of the cyclical position on collateral requirements, loan by loan In boom periods collateral requirements are relaxed while the opposite happens during recessions 28

29 Lending cycle and risk taking There is (robust) evidence of looser credit standards during expansions Banking supervisors concerns are well rooted both in theoretical and empirical grounds A prudential tool is needed to cope with the potential problems due to too rapid credit growth Dynamic provisions 29

30 Monetary policy and risk taking Do low interest rates encourage bank risk-taking, but at the same time reduce credit risk on outstanding loans? What is the impact of the stance and path of MP on credit risk? Duality of interest rate: On the one hand, low interest rates may create excessive risktaking On the other hand, low interest rates may reduce the risk of outstanding bank credit Jiménez, Ongena, Peydró and Saurina (WP 2008) provide the first hard evidence on this dilemma 30

31 Monetary policy and risk taking We find that banks soften their lending standards with lower interest rates They lend more to borrowers with a bad credit history and with higher uncertainty More importantly, we also find evidence of the duality of interest rates: Credit risk increases with lower interest rates at loan origination But also increases as a result of higher rates during the life of the loan, i.e., conditioning on the loan being granted, lower rates reduce the credit risk of outstanding loans Our results, therefore, suggest that low rates encourage risk-taking, reduce credit risk in the short-term but worsen it in the medium-term We find that risk-taking is not equal for all type of banks Small banks and more liquid banks take on more extra risk than other banks when interest rates are lower 31

32 Monetary policy and risk taking Hazard rate Policy rate prior to origination Policy rate until maturity

33 Monetary policy and risk taking Bank risk-taking increases when rates prior to loan origination are low There is a completely different impact of lower interest rates on the credit risk of new vs outstanding loans In the short-run lower interest rates reduce total credit risk of banks since the volume of outstanding loans is larger than the volume of new loans In the medium term, lower interest rates increase credit risk in the economy A period of low interest rates followed by a severe monetary contraction maximizes credit risk, as the already hazardous cohort of new loans gets exposed to higher interest rates as outstanding loans On the other hand, and asymmetrically, vertical declines in interest rates minimize total credit risk ceteris paribus 33

34 Impact assessment Impact of Basel II on lending to SMEs Hot topic for the BCBS some time ago Use Credit Register to assess the impact Sample PD converges to population PD Plug PD in Basel II formulas and obtain capital requirements Compare new requirements with old ones Saurina and Trucharte (JFSR 2004) 34

35 Impact assessment 8 7 Current system Turnover < 50 million Exposure < 1 million SA 3 2 Sales < 50 million Exposure > 1 million IRB 1 0 Turnover > 50 million SMEs SMEs Large (exp.< 1million) (exp.> 1million) firms 35

36 Procyclicality A model of PDs for mortgages using Credit Register information only Calculate PDs PIT and TTC Plug in the estimated PDs in Basel II curves Saurina and Trucharte (JFSR 2007) 36

37 Procyclicality-mortgages

38 Procyclicality-mortgages

39 Adjusting procyclicality Repullo, Saurina and Trucharte (G ) Concern: bank capital regulation may amplify business cycles In particular, contraction in loan supply in downturns due to Lower bank capital due to higher default rates Possibly higher capital requirements (Basel II) Basel II will make things worse Rationale for cyclical adjustment of cap. Requirements How should cyclical adjustment of Basel II be made? Two basic alternatives Smooth the inputs of the Basel II formula Through-the-cycle ratings Smooth the output (with point-in-time ratings) 39

40 Adjusting procyclicality Estimate model of probabilities of default (PDs) Data on Spanish firms loans for the period from Credit Register Compute corresponding Basel II capital requirements Smooth cyclical behavior using Hodrick-Prescott (HP) filter Compare different smoothing procedures Using root mean square deviations from HP benchmark Root mean square deviations (RMSD) from HP benchmark RMSD (%) TTC ratings 0.45 GDP growth multiplier (α = 0.086) 0.36 Credit growth multiplier (α = 0.066) 0.60 Stock market multiplier (α = 0.017) 0.75 Autoregressive adjustment (δ = 0.30)

41 Procyclicality-corporates

42 Procyclicality-corporates

43 Alternative adjustments- GDP

44 Conclusions Main purpose of a Credit Register: To support inspectors/examiners work Micro-prudential approach However, plenty of scope to be used in other areas Financial stability: understanding bank lending Monitoring of credit risk, credit lines usage, role of collateral, lending standards, MP and risk taking Policy design Dynamic provisions, Basel II calibration, impact assessment Research Filter into Financial Stability Review Credit Registers are a key element of a macro-prudential approach 44

45 References Jiménez, G., Lopez, J.A., and Saurina, J Empirical analysis of corporate credit lines, forthcoming Review of Financial Studies. Jiménez, G., Salas Fumás, V. and Saurina, J., Determinants of Collateral. Journal of Financial Economics, 81, Jiménez, G and Saurina, J., "Credit Cycles, Credit Risk, and Prudential Regulation". International Journal of Central Banking, June, Jiménez, G., Peydró, J.L., Ongena, S., Saurina, J Hazardous times for monetary policy: What do twenty-three million bank loans say about the effects of monetary policy on credit risk-taking? WP 0833 Banco de España. Repullo, R. J. Saurina and C. Trucharte (2009): Mitigating the Procyclicality of Basel II, in Macroeconomic Stability and Financial regulation: Key Issues for the G20, edited by M. Dewatripont, X. Freixas and R. Portes. RBWC/CEPR 45

46 References Saurina, J. and Trucharte, C The Impact of Basel II on Lending to Small- and Medium-Sized Firms: A Regulatory Policy Assessment Based on Spanish Credit Register. Journal of Financial Services Research. Volume 26, Issue 2. Pp Saurina, J. and Trucharte, C An assessment of Basel II procyclicality in mortgage portfolios. Journal of Financial Services Research; Volume 32, No. 1-2, Saurina, J. (2009a): Dynamic Provisioning. The experience of Spain. Crisis Response. Public Policy for the Private Sector. Note Number 7. July. The World Bank. Saurina, J. (2009b): Countercyclical loan loss provisions in Spain. De próxima publicaicón en Estabilidad Financiera. 46