Sorry, you need to enable JavaScript to visit this website.



Credit Risk Dynamics of Infrastructure Investment : Considerations for Financial Regulators

Note: By clicking the DOWNLOAD button, you will leave the GICA website and be redirected to the source site of the selected document. The source site’s terms of use will govern your use of the selected document.
183 bytes •

Prudential regulation of infrastructure investment plays an important role in creating an enabling environment for mobilizing long-term finance from institutional investors, such as insurance companies, and, thus, gives critical support to sustainable development. Infrastructure projects are asset-intensive and generate predictable and stable cash flows over the long term, with low correlation to other assets; hence they provide a natural match for insurers' liabilities-driven investment strategies. The historical default experience of infrastructure debt suggests a "hump-shaped" credit risk profile, which converges to investment grade quality within a few years after financial close -- supported by a consistently high recovery rate with limited cross-country variation in non-accrual events. However, the resilient credit performance of infrastructure -- also in emerging market and developing economies -- is not reflected in the standardized approaches for credit risk in most regulatory frameworks. Capital charges would decline significantly for a differentiated regulatory treatment of infrastructure debt as a separate asset class. Supplementary analysis suggests that also banks would benefit from greater differentiation, but only over shorter risk horizons, encouraging a more efficient allocation of capital by shifting the supply of long-term funding to insurers.


Jobst, Andreas A.. 2018. Credit Risk Dynamics of Infrastructure Investment : Considerations for Financial Regulators. World Bank, Washington, DC. © World Bank. License: CC BY 3.0 IGO.


  • connect