Work detail

The impact of the COVID-19 crisis on bank corporate credit risk management in the US and the UK

Author: Bc. Matěj Kořínek
Year: 2021 - summer
Leaders: prof. PhDr. Petr Teplý Ph.D.
Consultants:
Work type: Bachelors
Language: English
Pages: 115
Awards and prizes:
Link: https://ckis.cuni.cz:443/F/?func=direct&doc_number=002447994&local_base=CKS01&format=999
Abstract: The thesis deals with bank corporate credit risk management during the COVID-19
crisis in the US and the UK. As a proxy of corporate credit risk, we employ corporate
aggregate probability of default provided by Credit Benchmark. To measure the
impact of the crisis on corporate aggregate probability of default, we use variables
representing macroeconomic and financial market environments. Furthermore, as
proxies for the COVID-19 shock and governments’ fiscal measures, we employ
COVID-19 stringency index and dummy variable(s), respectively. Our data set
consists of 60 monthly observations, and by its structure is suitable for time series
analysis. The analysis is based on Ordinary Least Squares, Two Stage Least Squares,
and Generalized Method of Moments estimations. The results show that fiscal
measures “artificially” decreased change of corporate aggregate probability of
default in both countries. We recommend that the respective bank credit risk
managers incorporate proxies representing fiscal measures in their estimation of
through-the-cycle probability of default that serves as an input for calculating
regulatory capital. Besides, a variable representing stringency index is found to be
significant in the US’s model. Thus, we recommend using such a proxy as input for
stress testing in the US.
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