Bank Size and Risk-Taking under Basel II

Hakenes, Hendrik; Schnabel, Isabel

doi:10.2139/ssrn.700581

Cited by 23 publications

(7 citation statements)

References 31 publications

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“…However, the moderating effect is less striking for precisely the major contributors to systemic risk. In this regard, the speculation of Hakenes and Schnabel (2011) is not supported by the data. Based on theoretical considerations Hakenes and Schnabel argue that the IRB-approach of Basel II induced smaller and medium-sized banks to take larger risks in order to compete effectively with larger banks employing the IRB-approach.…”

contrasting

confidence: 62%

“…20 Even if the competitive effect of Hakenes and Schnabel (2011) is relevant at all, our evidence suggests that the direct (negative) implications for banks' risk management are dominant. However, our findings about the effects of internal models suggest that the assumption of an increase in resiliency or the largest banks due to the use of risk-models is not supported We regress the SRISK measure on the CISS indicator of systemic stress, the Beta, the bank-level IRBA dummy from January 2007, the Market Risk amendment dummy from January 1996, the Basel II dummy from June 2006 and the Basel III dummy for September 2008.…”

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confidence: 87%

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Did the Basel Process of Capital Regulation Enhance the Resiliency of European Banks

Gehrig

Iannino

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis paper analyses the evolution of measures of the safety and soundness of the European banking sector during the various stages of the Basel process of capital regulation. With the help of SRISK and Delta CoVaR we trace systemic risk and measures of systematic risk as the Basel process unfolds. We observe that, though systematic risk for European banks has been moderately decreasing over the last three decades, exposure to systemic risk has heightened considerably especially for the largest systemic banks. While the Basel process has succeeded in containing systemic risk for smaller banks, it has been less successful for the largest institutions. By exploiting the option of self-regulation embodied in the choice of internal models, the latter effectively seem to have increased their exposure to systemic risk as reflected in increasing SRISK. Hence, the sub-prime crisis found especially the largest and more systemic banks ill-prepared and lacking resiliency. This condition has even aggravated during the European sovereign crisis. Banking Union has not (yet) brought about a significant increase in the safety and soundness of the European banking system.

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confidence: 62%

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confidence: 87%

Did the Basel Process of Capital Regulation Enhance the Resiliency of European Banks

Gehrig

Iannino

2017

SSRN Journal

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“…The scope of discrepancy may be perceived through a common setup of regulatory rules wherein there is room to choose between the SA and IRB approach [14]. In such a case, only large banks would opt for IRB for its high implementation costs.…”

Section: Modification Of the F-irb Approachmentioning

confidence: 99%

“…This is also reflected in the implementation of internal model approach, as the banks made use of the opportunities provided to reduce RWA [21]. It is evident that the issue of moral hazard in IRB approach further emerged in the situations when the banks were provided Finance the opportunity to choose between the approaches for the calculation of RWA [14], which is not the case when the approach is mandatory for all. These are just some of the issues that need to be brought out in the process of revision of the overall framework, in order to analyse its further direction.…”

Section: Introductionmentioning

confidence: 99%

The treatment of credit risk in post-crisis reform of Basel rules: Modification of the standardised and foundation IRB approach

Lazarević¹

2017

Ekonomika preduzeca

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SažetakOkvir za kreditne rizike Bazel II standarda nije uspeo na adekvatan način da pruži odgovor u uslovima krize zbog čega je neminovnost njegove revizije imperativ koji se postavlja pred Bazelski komitet. Sveobuhvatna reforma pristupa koji determinišu rizikom-ponderisanu aktivu u svom fokusu imaju upravo pravila vezana za kreditni rizik, jer je on njen najveći konstituent. Pravci evolucije pristupa za kreditni rizik naziru se iz konsultativnih dokumenata Bazelskog komiteta, i ovaj rad ima prvenstveno za cilj kritički osvrt na njihove nastupajuće promene sa primarnim aspektima na standardizovani pristup (SA) i osnovni IRB pristup (F-IRB). U tom smislu, apostrofirane su ključne tačke revizije i urađena je komparativna analiza u odnosu na trenutno aktuelnu regulativu. Kao dodatni benefiti istraživanja predstavljeni su predlozi koji treba da analitički nadograde aparaturu, posebno u delu F-IRB pristupa, gde su identifikovana pitanja korelacije, primene modela i njihove validacije. Jedno od zanimljivih rešenja koje se predlaže za unapređenje sistema kreditnih rizika bi predstavljao treći, hibridni pristup, koji bi podrazumevao konstrukciju modela od strane nacionalnih regulatora i primenu u njihovim jurisdikcijama. Dominantni zaključak celokupne evaluacije je potreba za radikalnim promenama okvira za kreditne rizike, jer su empirijske analize dokazale velike manjkavosti i anomalije obračuna rizikom-ponderisane aktive. Zbog toga se predlozi u konsultativnim dokumentima Bazelskog komiteta ne mogu smatrati korakom u pravom smeru jer je očigledna nedovoljna snaga za korenitim promenama pristupa koji se koriste za opisivanje pozicija izloženosti kreditnom riziku. AbstractThe framework for credit risk from Basel II standard failed to provide an adequate response in periods of crises, so the necessity of its revision is an imperative placed before the Basel Committee. A comprehensive reform of approaches used to determine risk-weighted assets is particularly focused on the rules relating to credit risk, because it is its largest constituent. The directions of evolution of approaches for credit risk can be anticipated in consultative documents of the Basel Committee, and this paper is primarily aimed at presenting a critical review of their upcoming changes, particularly focusing on Standardised approach (SA) and Foundation IRB approach (F-IRB). In that sense, key points of revision are emphasised, and comparative analysis regarding current regulations has been done. As additional benefits of research, certain suggestions are presented with a view to upgrading the architecture in an analytical sense, especially in the part relating to F-IRB approach, where correlation issues, application of models and their validation have been identified. One of interesting solutions proposed for improving the credit risk system would be the third hybrid approach, which implies the development of models by the national regulators and implementation in their jurisdictions. The dominant conclusion of the entire evaluation is the need for ...

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“…The banks using the IRB approach generally experienced a decrease in the amount of capital they had to hold, in comparison to those banks that adopted the standard approach (Tarullo, 2008). This represented an enormous incentive to apply the IRB approach, especially for large banks (Hakenes and Schnabel, 2011). However, small banks were more likely to apply the standard approach due to the high costs of developing an internal model.…”

Section: The Effectiveness Of the Basel Regulatory Framework On Bank mentioning

confidence: 99%

The Effects of Bank Regulation on the Relationship Between Capital and Risk

Tanda

2015

Comp Econ Stud

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Capital regulation acts as an external force in the determination of bank capital and risk levels. Changes in the regulatory framework can influence banks' decisions. Starting from the debate of the prudential regulation after the financial crisis, this paper reviews the main empirical contributions on the role of capital regulation in the determination of banks' capital ratios and risk exposure to evaluate bank behavior. Capital and risk decisions seem to be effectively influenced by regulation, although results may vary according to factors such as time period, country, and the type of capital analyzed. Comparative Economic Studies (2015) 57, 31-54.

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Bank Size and Risk-Taking under Basel II

Cited by 23 publications

References 31 publications

Did the Basel Process of Capital Regulation Enhance the Resiliency of European Banks

Did the Basel Process of Capital Regulation Enhance the Resiliency of European Banks

The treatment of credit risk in post-crisis reform of Basel rules: Modification of the standardised and foundation IRB approach

The Effects of Bank Regulation on the Relationship Between Capital and Risk

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