In response to the global financial crisis (GFC) that started in 2007, both international and national authorities initiated number of regulatory changes. These were addressing primarily the risks generated in the banking sectors and to some extent at the insurance industry and capital market. In particular, the Basel Committee on Banking Supervision (BCBS) introduced number of reforms to the international framework for measuring and mitigating solvency, liquidity, and market risks. Besides regulatory changes for functioning of individual institutions, macroprudential policies were instituted to address systemic risks (for details see Frait et. al (2016). The GCF has had dire consequences for macroeconomic dynamics and stability of global economy, the advanced economies in particular. Weak demand, partially associated with high indebtedness in number of economies, contributed to strong disinflationary pressures. Central banks have responded by exceptionally accommodative policies that created environment of exceptionally low interest rates (Section 1.3). Despite it, economic activity in most advanced economies remained subdued and disinflation pressures persisted. This chapter deals with the potential of adopted policies to create potential sources of systemic risk. It also discusses the risk of Japanisation of European economy and its financial sector (Section 1.2).
INNOVATIVE APPROACH TO THE MANAGEMENT OF CREDIT RISK 1Credit rating is a traditional measurement of credit risk in financial markets. This paper introduces an innovative approach based on implied ratings defined by CDS spreads. Using this approach the credit risk can be better managed because CDS are provided on daily basis. The implied rating is compared with credit ratings provided by Moody´s, S&P, and Fitch. The model of implied rating deals only with sovereign ratings. 52 countries were chosen for comparison of both types of above-mentioned ratings. The model uses cumulative default probabilities (CPD) derived from CDS spreads and the main results are CPD intervals which define implied credit ratings. For those countries where the credit rating and implied credit rating are different, the paper shows how implied rating can serve as a signal for potential upgrade or downgrade of the credit rating provided by rating agencies. The presented model is also used to verify ratings provided by Moody´s, S&P, and Fitch in cases where these agencies provide different ratings for a specific country. This is especially important when some ratings are investment-grade and others are speculative-grade.
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