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Theoretical model of macroprudential add-ons to risk-weights for foreign-currency denominated loans
https://doi.org/10.32609/0042-8736-2024-12-69-85
Abstract
We offer a Merton-Vasicek model extension to account for the presence of foreign-currency denominated loans in the portfolio and to derive the value of the macroprudential add-ons to risk-weights in the capital adequacy ratio. We show how the add-ons depend upon the foreign-currency exchange rate volatility, and upon the ratio of foreign-currency denominated assets and liabilities of typical borrowers within such a loan portfolio. In addition, we explain why it is worth accounting for the exchange rate in the additive, and not multiplicative form in the theoretical model.
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For citations:
Penikas H.I. Theoretical model of macroprudential add-ons to risk-weights for foreign-currency denominated loans. Voprosy Ekonomiki. 2024;(12):69-85. (In Russ.) https://doi.org/10.32609/0042-8736-2024-12-69-85
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