Do methods of estimantion affect credit risk oscillations?

Abstract

In this article we study the relationship between methods of estimation and dynamics of credit risk. Based on the analysis of statistical time series of loans granted and overdue debts in US banking sector for the period of over 100 years, as well as using experimental settings, we find evidence that evolution of credit risk evaluation methods does not contribute to reducing the amplitude of credit market fluctuations, as well as does not reduce the level of credit risk accepted by lenders. Moreover a hypothesis, according to which innovations in credit risk management increase the willingness to accept risk, gains additional support.