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The Pro-Cyclicality of Risk Weights for Credit Exposures in the Czech Republic

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  • Simona Malovana

Abstract

This paper studies the pro-cyclicality of risk weights with respect to the business, credit and financial cycles using data for the Czech Republic. The empirical results indicate that risk weights behave pro-cyclically under the IRB approach and acyclically under the STA approach. The pro-cyclical behaviour of IRB risk weights for credit exposures is caused primarily by the procyclicality of risk weights for retail credit exposures, the strongest effects being in the highest and lowest quantiles of risk weights. The risk weights for retail exposures behave pro-cyclically not only with regard to the business cycle, but also with respect to the financial cycle and house price growth.

Suggested Citation

  • Simona Malovana, 2018. "The Pro-Cyclicality of Risk Weights for Credit Exposures in the Czech Republic," Working Papers 2018/12, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2018/12
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    More about this item

    Keywords

    Housing market; internal ratings-based approach; procyclicality; quantile regression; risk weights;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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