Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278285 
Year of Publication: 
2022
Series/Report no.: 
ECB Working Paper No. 2760
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
When the Covid-19 crisis struck, banks using internal-rating based (IRB) models quickly recognized the increase in risk and reduced lending more than banks using a standardized approach. This effect is not driven by borrowers' quality or by banks in countries with credit booms before the pandemic. The higher risk sensitivity of IRB models does not always result in lower credit provision when risk intensifies. Certain features of the IRB models - the use of a downturn Loss Given Default parameter - can increase banks' resilience and preserve their intermediation capacity also during downturns. Affected borrowers were not able to fully insulate and decreased corporate investments.
Subjects: 
Model-based regulation
Banks
Supervision
Lending
Covid-19
JEL: 
G21
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-5472-3
Document Type: 
Working Paper

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