Regulations leading up to the financial crisis of 2007-2009 provided incentives for banks shift their risk profiles toward less regulated areas. We focus on the case of operational risk which went from being a relatively benign and largely unregulated risk type to a major risk that now accounts...

Operational risk management in banking has assumed such importance during the last decades. It has become increasingly important to measure, manage, and assess the impact of operational risk in the economics of banking. The paper aims to demonstrate how an effective operational risk management...

This paper examines capital adequacy regulation in Germany. After a short overview about financial regulation in Germany in general, the paper focuses on the most important development in the area of capital adequacy regulation from the 1930s up to the financial crisis. Two main trends are...

We study the transmission mechanisms of liquidity and capital regulations as well as their effects on the economy and welfare. We propose a macro-economic model in which a regulator faces the following trade-off. On the one hand, banking regulations may reduce the aggregate supply of credit. On...

An important component of the Basel Committee on Banking Supervision's framework of capital measurement and capital standards is the public disclosure of regulatory information (referred to as “Pillar 3” within the framework). The standard sets minimum requirements for the public disclosure...

As the recent financial crisis unfolded, a new financial instrument -- contingent capital (“coco”) bonds -- was widely considered as a mechanism for promptly re-capitalizing over-levered financial institutions. Essentially, coco bonds would replace supervisory discretion about banks' capital...

This study investigates the associations among bank risk-taking, ownership concentration, and the recently-proposed standard for capital stability (Basel III). Consistent with theory, the evidence shows that a rise in ownership concentration by one standard deviation increases the extent of...

In the wake of the 2008 financial crisis, bank regulators are paying more attention to derivatives. In a move that can be seen as a step away from fair-value accounting, bank regulators (Basel III) have proposed to calculate bank leverage ratios using notional values, rather than fair values, of...

This paper empirically investigates how risk exposure of security holdings affected the optimal choice of total risk weighted asset under Basel II regulation. With costly recapitalization cost, banks optimally choose buffer regulatory capital above the minimum standard. Therefore, security...

The bail-in tool as implemented in the European bank resolution framework suffers from severe shortcomings. To some extent, the regulatory framework can remedy the impediments to the desirable incentive effect of private sector involvement (PSI) that emanate from a lack of predictability of...