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Are some Banks More Lenient in the Implementation of Placement Classification Rules?

Author

Listed:
  • Tomislav Ridzak

    (The Croatian National Bank, Croatia)

Abstract

This research aims to analyse differences in the credit risk classification amongst commercial banks. Placement classification systems used by banks cannot be thoroughly examined without a detailed knowledge of the actual quality of individual placements, and no regulator has the opportunity to gain such an insight into loan portfolios. This research presents a somewhat roundabout approach, based on a comparison of differences in placement classification of a common portfolio, using the Rasch model to assess the relative strictness of banks. In addition to providing valuable information for the performance of the supervisory function, the results can also aid the assessment of financial stability in the banking system, as they allow quick evaluation of risk management practices in the banking system and detecting outlying banks.

Suggested Citation

  • Tomislav Ridzak, 2012. "Are some Banks More Lenient in the Implementation of Placement Classification Rules?," Working Papers 32, The Croatian National Bank, Croatia.
    • Handle: RePEc:hnb:wpaper:32
    as

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    File URL: http://www.hnb.hr/repec/hnb/wpaper/pdf/w-032.pdf
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    References listed on IDEAS

    as
    1. Mair, Patrick & Hatzinger, Reinhold, 2007. "Extended Rasch Modeling: The eRm Package for the Application of IRT Models in R," Journal of Statistical Software, Foundation for Open Access Statistics, vol. 20(i09).
    2. Mr. In W Song, 2002. "Collateral in Loan Classification and Provisioning," IMF Working Papers 2002/122, International Monetary Fund.
    3. Alain Laurin & Giovanni Majnoni, 2003. "Bank Loan Classification and Provisioning Practices in Selected Developed and Emerging Countries," World Bank Publications - Books, The World Bank Group, number 15157.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    bank leniency; loan classification; Rasch model; multiple borrowers; commercial bank supervision;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General

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