The Research On Loss Given Default Of Management Of Credit Risk

Credit Risk is the most important one of various types of risk faced by banks, it is the difficulty and focus of The New Basel Capital Accord. Therefore, the banking sector attracted great attention.The role of LGD in Bank Credit Risk Management can not be ignored. Nevertheless, Study for the LGD in China is far from mature enough. Especially in the LGD quantitative research is facing a severe test. As the world's advanced level of bank's credit risk management of continuous improvement, Our credit risk related topics in the research had been pressing. Therefore, this article summarized the theory and practice, while other scholars` point of view, and I try to have some of these innovations.First, the article describes the Research on topics of significance and at home and abroad. LGD as an important indicator of the internal ratings-based approach, can be able to accurately display the level of bank risk management, but the research is still in its initial stage, it`s just the significance of this research. Meanwhile, the paper also summarized the relevant research projects at home and abroad the theory.Secondly, the body of this article describes the following four aspects of loss given default rate:1.The theory of LGD. For the theoretical basis for default loss rates, characteristics, nature and the importance of a detailed presentation, and a profound analysis of its influencing factors. First proposed RobertC.Merton (1974) model of loss given default to lay the theoretical basis for the study;Second, introducing the same nature and unique characteristics of PD and LGD. It described LGD in the regulatory capital framework and the bank's internal rating and management of an important role. Finially, it analysis, the PD, the economic cycle, industry, company, project and other factors influence LGD.2. Internal evaluation under the Basel Accord. This chapter describes a comprehensive risk management from the macro and micro perspective. The new agreement proposed by the three pillars: capital adequacy, supervision, market discipline is the macroscopic manifestation of a comprehensive risk management. At the same time, it describes Micro-Wide Risk Management by the case of Internal Ratings-Based Approach.Then, from the basic ideas and support system, key risk indicators of measurement and technical requirements described Internal Ratings-Based Approach.IRB is the transaction occurs, the bank's risk rating officer in accordance with certain rating methodology is a comprehensive evaluation of the borrower in accordance with the performance of the contract in full capacity and willingness of the relevant contract.3. Research on measurement technology. It is the core chapter of this paper. It is a problem to measure LGD. At first, this chapter introduces to estimate LGD by Options model, it described Merton(1974) model and the development;Then it summarizes the Primary Law of Internal Ratings-Based Approach to estimate LGD, Mortgage assets and Valuation techniques. Mortgage assets technology can be divided into market LGD, liquidation LGD, and Implied LGD. Finally, Using the historical average method to estimate LGD, to use the average as the fixed budgeting of LGD, it will bring misleading, So to adopt history data forecast instead of this.4.LGD application and development in China. This chapter describes the status of our LGD, LGD in China to carry out the meaning and practical basis and from the state-owned banks and commercial banks such as his were analyzed, of which institutional factors account for a large area. This chapter describes the meaning and practical basis for carrying out LGD in our country, carrying out the measurement study of Internal Ratings-Based Approach in our country is to improve the level of credit risk monitoring, reduce the regulatory capital, on the other hand, In order to make our country's banking sector as soon as possible and the world's most advanced banking integration is conducive to international co-operation. The constraints in the real conditions of China, China can not adopt advanced IRB approach. But our country can use an indirect approach. We can use financial data as the variable .The explanatory variables are the quality rating of loan maturity asset. We can use the Intermediate variable to build a distinguish model by asset quality rating. Innovation of this paper lies in the development of LGD to predict the direction. I believe that, through analysis of past non-performing loans and non-accrual loan balances, debt information, recall and collateral disposition of this series of data to determine LGD. Establish data-sharing database, the data is no longer the default rate forecast a loss threshold, improve the legal system is also related to its development trend.