Measuring value creation by comparing the RAROC of an exposure (the return on risk capital) with a single institution-wide hurdle rate is inconsistent with the standard theory of financial valuation. We use asset pricing theory to determine the appropriate hurdle rate for such a RAROC...

This paper investigates the effect of including the customer loan approval process to the estimation of loan performance and explores the influence of sample selection bias in predicting the probability of default. The bootstrap variable reduction technique is applied to reduce the variable...

Building an unbalanced panel of United States (US) bank holding company (BHC) and commercial bank balance sheet data from 1986 to 2006, we examine the relationship between short-term capital buffer and portfolio risk adjustments. Our estimations indicate that the relationship over the sample...

We solve a model of time to build, in closed form, for the special case where the only option is commencing investment. The ratio of the optimal to the NPV investment threshold is as in the standard analysis of irreversible investment. We then report numerical solutions for the general case...

In autumn of 2007 Britain experienced its first bank run of any significance since the reign of Queen Victoria. The run was on a bank called Northern Rock. This was extraordinary, for Britain had been free of such episodes because by early in the third quarter of the 19th century the Bank of...

This paper examines the impact of messaging and technical standards on competition in the supply of se-curities transaction management services. Two simple switching cost models are used to clarify the im-pact of standards on barriers to entry and on the incentives to adopt harmonised and...

The objective of this paper is to determine whether information from equity markets, as summarized in the distance to default measure derived from Merton-MKMV, is useful for modeling and predicting bank credit ratings. We use the BankScope database and Bloomberg to build a data set comprising of...