We examine the effects of the revised Basel II rules on bank managers' discretionary behavior, specifically income smoothing and loan loss provisioning. As the revised rules exert greater regulatory pressure on corporate than retail banking, we predict corporate bank managers to reduce...

Risk models developed on one dataset are often applied to new data and, in such cases, it is prudent to check that the model is suitable for the new data. An important application is in the banking industry, where statistical models are applied to loans to determine provisions and capital...

The aggregation of individual risks into total risk using a weighting variable multiplied by two ratio variables representing incidence and intensity is an important task for risk professionals. For example, expected loss (EL) of a loan is the product of exposure at default (EAD), probability of...

International concern on bank capital and minimum capital adequacy was first raised in 1980, in the G-10 countries governors meeting at the Bank for International Settlements (BIS) to respond to a series of bank failures and financial instability observed in Western developed economies. Later,...

Starting from the objective of banking supervision - to minimize the overall costs of banking to the general public - we show that the current standard of quantifying market risk is flawed. It is perfectly aligned with the interests of banks' shareholders and management, but not with the...

This paper studies loan activity in a context where banks must follow Basel Accord-type rules and acquire financing from households. Loan activity typically decreases when entrepreneurs' investment returns decline, and we study which type of policy could revigorate an economy in a trough. We...

The paper discusses the reform of capital regulation of banks in the wake of the financial crisis of 2007/2009. Whereas the Basel Committee on Banking Supervision seems to go for marginal changes here and there, the paper calls for a thorough overhaul, moving away from risk calibration and...

The paper attempts to investigate the influence of the 1988 Basel Accord on bank behavior and monetary policy. It is argued that the Accord was successful in that it forced commercial banks in all of G-10 countries to maintain higher capital ratios. Tentative research suggests, however, that -...

This paper examines capital adequacy regulation in Germany. After a general overview of financial regulation in Germany, 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 identified: a...

The Basel II Accord requires that banks and other Authorized Deposit-taking Institutions (ADIs) communicate their daily risk forecasts to the appropriate monetary authorities at the beginning of each trading day, using one or more risk models to measure Value-at-Risk (VaR). The risk estimates of...