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 simulations...

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 consider the impact of mandatory information disclosure on bank safety in a spatial model of banking competition in which a bank's probability of success depends on the quality of its risk measurement and management systems. Under Basel II capital requirements, this quality is either fully or...

The recent financial crises have brought into focus questions regarding the quality of banks' assets. We study the patterns in banks reserving for and reporting of loan losses in the EU before and after implementation of the Single Supervisory Mechanism (SSM). We find that banks that 1) have...

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....

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...

We model banks' loan losses with a panel of European countries for the period 1982-2012 using three country-specific macro variables: output growth shocks, real interest rates, and a measure of excessive private sector indebtedness. We find that a drop in output has an intensified impact on...

It has been proposed that the potential procyclicality of Basel II could be alleviated by using through-the-cycle (TTC) ratings in IRBA models. A TTC rating would be based on the structural component of the debtor's credit risk ignoring cyclical fluctuations. This paper tests for the existence...

Motivated by recent studies that show female CFOs are more risk averse than male CFOs when making various corporate decisions, we examine whether banks take into consideration the gender of CFOs when pricing bank loans. We find that in our sample, firms under the control of female CFOs on...