Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/275143 
Year of Publication: 
2023
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 16 [Issue:] 1 [Article No.:] 47 [Year:] 2023 [Pages:] 1-27
Publisher: 
MDPI, Basel
Abstract: 
Extraordinary economic conditions during the COVID-19 pandemic caused many IFRS 9 impairment models to produce unreliable results. Severe market reactions, resulting from unprecedented events, prompted swift action from the regulatory authorities to maintain the financial system's stability. Banks managed the uncertainty and volatility in the models with expert overlays, increasing the risk of biased outcomes. This study examines new ways of enhancing the governance and transparency of the IFRS 9 economic scenarios within banks and suggests additional financial disclosures. Benchmarking is proposed as a useful tool to evaluate the IFRS 9 economic scenarios and ensure effective challenge as part of a model risk governance framework. Archimedean copulas are used to generate objective economic benchmarks. Ideas around benchmarking are illustrated for a set of South African economic variables, and the outcomes are compared to the IFRS 9 scenarios published by the six biggest South African banks in their annual financial statements during the pandemic.
Subjects: 
automation
Archimedean copulas
ARIMA&#x2013
GARCH
d-vine
economic scenarios
financial disclosures
IFRS 9 impairments
model risk management
procyclicality
spurious correlation
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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