Large Exposures: Implicit Credit Risk Concentration add-ons and the Basel Framework

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The Anáhuac Journal
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Published: Jun 26, 2024
DOI: https://doi.org/10.36105/theanahuacjour.2024v24n1.05
Keywords:
large exposures, LEX, credit risk concentration add-ons, granularity adjustment, HHI, ICAAP, CVaR

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José Juan Chávez
EGADE Business School, Tecnológico de Monterrey, Mexico
https://orcid.org/0009-0002-9593-7789

Abstract

The Basel large exposures standard, addressed to banks, is in the process of being implemented, and although the new rule is  reducing the limit for the large credit exposures in banks, and is geared to better control the portfolio risk parameters that make a portfolio more prone to losses due to credit concentration, it is important to know the share of risk and capital implicit to this new  rule. In this work, the implicit add-ons for credit risk concentration are determined through a Monte Carlo credit risk model, and the results are compared with current capital requirements. The author also analyzed the complete Basel framework to understand how the concentration risk is addressed in an integrated approach rather than with a specific capital supplement.

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How to Cite
Chávez, J. J. (2024). Large Exposures: Implicit Credit Risk Concentration add-ons and the Basel Framework. The Anáhuac Journal, 24(1), Págs. 114–159. https://doi.org/10.36105/theanahuacjour.2024v24n1.05
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Vol. 24 No. 1 (2024): The Anáhuac Journal, Vol. 24, num. 1, 2024, First Semester
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Artículos
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Author Biography

José Juan Chávez, EGADE Business School, Tecnológico de Monterrey, Mexico

José Juan Chávez obtained the following degrees: a Bachelor’s in Economics from the School of Economics at the Universidad Nacional Autónoma de México (UNAM), a Master’s in Finance, and a PhD in Financial Sciences at the Instituto Tecnológico de Monterrey (ITESM; EGADE Business School). He has been a professor at the ITESM, where he has taught courses at the undergraduate and graduate levels—both master’s and PhD—for over 15 years, especially in risk management, corporate finance, and credit financing. Chávez has wide experience in the financial sector in Mexico. He worked for 34 years in Grupo Financiero Scotiabank Inverlat (GFSI) in corporate credit financing, credit policy, and credit analysis, credit risk modelling and management, and liquidity risk management. He successfully led the Basel Accord implementation in GFSI for ten years, and for the last eight years has worked in optimizing regulatory and economic capital with excellent results. He was head of the Risk Committee of the AMIB (Mexican Brokerage Houses and Investment Funds Association) from late 2020 to early 2024, where he led the group that determined the collateral haircuts for repo and securities lending markets, applying state-of-theart market risk and credit risk standards. Currently, he is devoted to research and education activities.

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