The Basel III capital accord of 2010 is subject to further evaluation and revisions. The industry refers to these changes as “Basel IV” in view of the expected significant impact that the further proposals of the Basel Committee may have. The Committee itself considers the various proposals...

This paper studies optimal bank capital requirements in an economy where bank losses have financial spillovers. The spillovers amplify the effects of shocks, making the banking system and the economy less stable. The spillovers increase with banks' financial distortions, which in turn increase...

The Basel capital is a “margin” requirement imposed by regulators to cushion banks against extreme falls in prices of assets held, and is often a function of value-at-risk (VaR). The way banks adjust their balance sheets to maintain the requirement is equivalent to leverage targeting that...

The paper argues that it would be natural to replace the standard normal distribution function by the logistic function in the regulatory Basel II (Vasicek's) formula. Such a model would be in fact consistent with the standard logistic regression PD modeling approach. An empirical study based on...

The paper analyzes a two-factor credit risk model allowing to capture default and recovery rate variation, their mutual correlation, and dependence on various explanatory variables. At the same time, it allows computing analytically the unexpected credit loss. We propose and empirically...

This paper analyzes the level and cyclicality of bank capital requirement in relation to (i) the model methodologies through-the-cycle and point-in-time, (ii) four distinct downturn loss rate given default concepts, and (iii) US corporate and mortgage loans. The major finding is that less...

A major topic in empirical finance is correlation of default risk. Correlations are the main drivers for credit risk on a portfolio basis and for banks' capital requirements under the New Basel Accord. However, empirical evidence on the magnitude of correlations is rather scarce, mainly due to...

The author compares the U.S. with other G-10 countries regarding key aspects of permissible banking activities. One conclusion is that banks in the U.S. face greater restrictions, and possibly more intensive supervisory oversight, than do banks in most other G-10 countries. Second, the majority...

The paper analyzes a two-factor credit risk model allowing to capture default and recovery rate variation, their mutual correlation, and dependence on various explanatory variables. At the same time, it allows computing analytically the unexpected credit loss. We propose and empirically...