In the discussion paper, we employ data on industry-specific corporate sector bankruptcies over the time period from 1986 to 2003 and estimate a macroeconomic credit risk model for the Finnish corporate sector. The sample period includes a severe recession with significantly higher-than-average...

Although beneficial allocational effects have been a central motivation for the Basel II capital adequacy reform, the interaction of these effects with Basel II’s procyclical impact has been less discussed. In this paper, we investigate the effect of Basel II on the efficiency of bank lending....

Basel II framework requires banks to conduct stress tests on their potential future minimum capital requirements and consider ‘at least the effect of mild recession scenarios’. We propose a stress testing framework for minimum capital requirements in which banks’ corporate credit risks are...

We show how banks’ excessive risk-taking, stemming from informational asymmetries in loan markets, can lead to an excessive output loss when a recession starts. Risk-based capital requirements can alleviate the output loss by reducing excessive risk-taking in ‘normal’ times. Model...

We study the effects on credit allocation and bank stability of introducing a leverage ratio requirement (LRR) on top of risk-based capital requirements, as in Basel III. For the current 3% LRR, both low-risk and high-risk loan rates and volumes remain essentially unchanged, because banks...

We study whether and to what extent financial exchange innovations are in practice patentable in Europe. We find that exchange-related applications initially increased significantly after the State Street decision but subsequently decreased. The clear majority (65%) of applications come from the...

Recently, banking literature has had a quest for appropriate pricing of bank loans under the new Basel II rules and has been in pursuit of possible outcomes for undertaking such credit risk. In this paper, we propose a simplified formula to price bank’s corporate loans, aiming at making bank...

China is reforming its banking system, partially privatizing and permitting minority foreign ownership of three of the dominant ‘big four’ state-owned banks. This paper seeks to help predict the effects of this change by analysing the efficiency of virtually all Chinese banks in the years...

Transparency regulation aims at reducing financial fragility by strengthening market discipline. There are however two elementary properties of banking that may render such regulation inefficient at best and detrimental at worst. First, an extensive financial safety net may eliminate the...