Should SME exposures be treated as retail or corporate exposures? A comparative analysis of default probabilities and asset correlations in French and German SMEs

Dietsch, Michel; Petey, Joël

doi:10.1016/s0378-4266(03)00199-7

Cited by 122 publications

(52 citation statements)

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“…Thus, it cannot be excluded that there also exist larger extreme values of asset return correlations in portfolios of limited size about which the regulatory authorities should have to worry. For example, Dietsch and Petey (2004) find that the dispersion of asset return correlation estimates is larger for large firms (yearly turnover larger than 40 million €) than for smaller SMEs. 13 Some of these studies (see, e.g.…”

Section: Empirical Results On Asset Return Correlation Estimatesmentioning

confidence: 98%

“…4.1 it is analyzed how large contagion effects specific to these two counterparties must be to explain the assumed large inter-sector correlation q o,g = 50%. Dietsch and Petey (2004) mention several reasons why the asset return correlation estimated in empirical studies might be too low. First, the length of the time series employed could be to short to cover at least one complete business cycle.…”

Section: Empirical Results On Asset Return Correlation Estimatesmentioning

confidence: 99%

“…However, even the highest asset return correlation estimated byDietsch and Petey (2004) for simulated portfolios of these larger firms is only 12%.52P. Grundke…”

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confidence: 99%

See 2 more Smart Citations

Regulatory treatment of the double default effect under the New Basel Accord: how conservative is it?

Grundke

2007

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Section: Empirical Results On Asset Return Correlation Estimatesmentioning

confidence: 98%

Section: Empirical Results On Asset Return Correlation Estimatesmentioning

confidence: 99%

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Regulatory treatment of the double default effect under the New Basel Accord: how conservative is it?

Grundke

2007

RMS

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“…Concerning the effects of the retail categorization for SMEs on the capital requirements of banks previous research concludes that, if classified as retail, less minimum equity capital is required from banks for given default probabilities. This distinction is justified by the assumption that small business loans and retail credits are less sensitive to systematic risks (Dietsch and Petey 2004). Altman and Sabato (2005) further hypothesize that the supply of credit for SME can be expanded, and this may imply a lower cost of credit.…”

Section: The Basel Capital Accordsmentioning

confidence: 99%

“…SeeHaller et al (2008).9 Dietsch and Petey (2004) indicate that by clearly declaring SME as riskier compared to larger companies.…”

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confidence: 99%

The impact of Basel II on the debt costs of German SMEs

Schindele

Szczesny

2015

J Bus Econ

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We investigate the ex-post effects of the Basel II reform on the debt costs of German small and medium-sized enterprises (SMEs). We assume that Basel II formalized the credit assessment procedure of banks and that especially SMEs might face higher costs of debt as they tend to have comparably high proportions of bank credit, and consequently lower ratings than bigger companies. Beyond that, banks might try to refinance those additional rating costs by imposing higher interest rates on debtors. The results presented in our paper indicate a significant overall rise of debt costs of SMEs that have debt relations with IRBA-certified banks since 2007. Furthermore, low-risk companies benefit from comparably lower loan rates, whereas risky firms face comparably higher loan costs than before. The results are less obvious for SMEs that are rated under RSA, but still present for highly risky companies. We test for several influences of the financial crisis. However, we do not find convincing arguments that would reason a rise of the costs of debt in regard of the crisis. Yet, we still observe higher debt costs of SMEs, particularly of highly risky companies, since 2007 that indicate a change of bank lending behavior in Germany.

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Regulatory Capital

Duellmann

2010

Encyclopedia of Quantitative Finance

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The 2004 Basel II framework marks a milestone in the transition from the rules‐based 1988 Basel I Accord to a more risk‐sensitive and principles‐based approach to bank regulation. It significantly expands the regulatory scope by a new capital charge for operational risk and by its new three‐pillar structure consisting of minimum capital requirements, supervisory review process, and market discipline. Depending on the risk category, the minimum capital requirements of its most advanced approaches are either built on banks' internal models or on regulatory models requiring banks' own estimates of risk components as input. The evolutionary nature of the Basel II framework will encourage banks to migrate to more risk‐sensitive approaches in the future, depending on the complexity of their business and their risk management expertise.

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Should SME exposures be treated as retail or corporate exposures? A comparative analysis of default probabilities and asset correlations in French and German SMEs

Cited by 122 publications

References 0 publications

Regulatory treatment of the double default effect under the New Basel Accord: how conservative is it?

Regulatory treatment of the double default effect under the New Basel Accord: how conservative is it?

The impact of Basel II on the debt costs of German SMEs

Regulatory Capital

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