Capital requirements under the credit risk-based framework

Antão, Paula; Lacerda, Ana

doi:10.1016/j.jbankfin.2010.10.003

Cited by 18 publications

(7 citation statements)

References 12 publications

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“…In order to assess the cyclaclity of capital requirements, several macroeconometric models have been proposed and estimated on data of different countries. Andersen (2011) and Antão and Lacerda (2011) simulate the IRB (internal rating based) approach of Basel II using Norwegian and Portuguese data respectively, both confirming the cyclicality of capital requirements and comparing the new regulatory framework with the previous one of Basel I 4 . More recently, in particular after the appearance of Basel III, a discussion about the utility and the correct implementation of macroprudential regulation of the banking sector has arisen.…”

Section: Introductionmentioning

confidence: 70%

Macroprudential Policies in an Agent-Based Artificial Economy

Cincotti¹,

Raberto²,

Teglio³

2012

Revue De l'OFCE

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Basel III is a recently-agreed regulatory standard for bank capital adequacy with focus on the macroprudential dimension of banking regulation, i.e., the systemwide implications of banks' lending and risk. An important Basel III provision is to reduce procyclicality of present banking regulation and promote countercyclical capital buffers for banks. The Eurace agent-based macroeconomic model and simulator has been recently showed to be able to reproduce a credit-fueled boom-bust dynamics where excessive bank leverages, while benefitting in the short term, have destabilizing effects in the medium-long term. In this paper we employ the Eurace model to test regulatory policies providing time varying capital requirements for banks, based on mechanisms that enforce banks to build up or release capital buffers, according to the overall conditions of the economy. As conditioning variables for these dynamic policies, both the unemployment rate and the aggregate credit growth have been considered. Results show that the dynamic regulation of capital requirements is generally more successful than fixed tight capital requirements in stabilizing the economy and improving the macroeconomic performance.

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Section: Introductionmentioning

confidence: 70%

Macroprudential Policies in an Agent-Based Artificial Economy

Cincotti¹,

Raberto²,

Teglio³

2012

Revue De l'OFCE

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“…Effectively, Basel II was so designed that the use of banks' internal models would allow them to derive lower risk weights in order to incite banks to enhance their risk management practices. Empirically, Basel II banks indeed exhibit lower RWA and hence lower capital charges than under Basel I (Antão and Lacerda 2011;Le Leslé and Avramova 2012;Mariathasan and Merrouche 2014).…”

Section: Relation To the Literaturementioning

confidence: 96%

Revisiting Basel risk weights: cross-sectional risk sensitivity and cyclicality

Baule

Tallau

2016

J Bus Econ

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We empirically assess the sensitivity of Basel risk weights to bank portfolio risk and the business cycle. With our econometric model, we distinguish between cross-sectional risk sensitivity and longitudinal risk sensitivity (cyclicality) of the regulatory standard. Employing a comprehensive data set covering 200 large banks from 28 countries, we find that actual risk weights are fairly insensitive to the business cycle. There is no evidence that Basel II has significantly increased cyclicality. Furthermore, cross-sectional risk sensitivity of regulatory risk weights to a market measure of bank portfolio risk is low. We further assess the adequacy of the capital standard's risk sensitivity based on a Merton-style model of bank risk and bank default. Judged upon the Basel Committee's self-established goal of maintaining bank default rates below 0.1 %, our results suggest that risk weights and minimum capital requirements are ill-calibrated, even under the stricter Basel III rules.

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“…In another study, Antão and Lacerda (2011) examine the effect of the use of riskbased measures for assessing the capital requirements for firms' credit risk (as proposed in Basel II). Using data from the Portuguese banking sector, they conclude that the capital requirement in Basel II for non-financial firms is lower than the previous regulation in Basel I.…”

Section: The Impact Of Basel II Regulation On the Banking Industrymentioning

confidence: 99%

The implication of banking regulation on bank business model: evidence from the ASEAN countries

Sudrajad

2021

JFRC

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Purpose The purpose of this paper is to examine to what extent is the impact of Basel II adoption on bank business models in the emerging market of selected ASEAN member states. Design/methodology/approach To evaluate the impact of the Basel II regulation on banking business models, a difference-in-differences estimation approach is used. This study defines bank business models using diversification index of a modified Herfindahl–Hirschman Index. Findings The findings suggest that the Basel II framework only affects banks’ income diversification, while there is no evidence that it leads to funding and asset diversification. Under the Basel II accord, banks have adjusted their business models by diversifying their sources of income to avoid the obligation for keeping more capital; in contrast, a less developed financial market structure and a dependency on customer deposits are creating difficulties for banks in diversifying their funding and asset structure. Research limitations/implications The banking sample are taken only from ASEAN countries. Practical implications The findings provide important implication on the regulatory perspective, which is the implementation of Basel II framework induces higher intensity for the use of non-interest income activities. Including in these activities are trading and derivatives. Accordingly, the financial authorities should take with care the use of trading and derivatives products in the banking industry which is already embedded in current Basel framework, the Basel III Accord. Originality/value The paper provides direct evidence on the impact of Basel II on bank business models in the emerging markets of ASEAN banking sectors.

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Capital requirements under the credit risk-based framework

Cited by 18 publications

References 12 publications

Macroprudential Policies in an Agent-Based Artificial Economy

Macroprudential Policies in an Agent-Based Artificial Economy

Revisiting Basel risk weights: cross-sectional risk sensitivity and cyclicality

The implication of banking regulation on bank business model: evidence from the ASEAN countries

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