In this paper, we investigate how the introduction of complex, model-based capital regulation affected credit risk of financial institutions. Model-based regulation was meant to enhance the stability of the financial sector by making capital charges more sensitive to risk. Exploiting the...

We use a quasi-experimental research design to examine the effect of model-based capital regulation introduced under the Basel II agreement on the pro-cyclicality of bank lending and firms' access to funds during a recession. In response to an exogenous shock to credit risk in the German...

In response to the global financial crisis of 2007-2009, risk-based capital requirements have been reinforced in the new Basel III Accord to counter excessive bank risk-taking behavior. However, prior theoretical as well as empirical literature that studies the impact of risk-based capital...

This study analyzes the relevance of capital adjustment and risk-taking adjustment during the financial tsunami when the banking industry was under capital regulation. Using the panel data of commercial banks in the USA and non-USA from 2003 to 2009, we consider the effects of financial freedom,...

This paper proposes a new regulatory approach that implements capital requirements contingent on executive incentive schemes. We argue that excessive risk-taking in the financial sector originates from the shareholder moral hazard created by government guarantees rather than from corporate...

The paper proposes a framework for assessing the impact of system-wide and bank-level capital buffers. The assessment rests on a factor-augmented vector autoregression (FAVAR) model that relates individual bank adjustments to macroeconomic dynamics. We estimate FAVAR models individually for...

Prompt Corrective Action (PCA) is a system of predetermined capital/asset ratios that trigger supervisory actions by a banking regulator. Our paper addresses the optimality of this regulation system by adapting a dynamic model of entrepreneurial finance to banking regulation. In a dynamic moral...

Bank capital requirements are based on a mix of market values and book values. We investigate the effects of a policy change that ties regulatory capital to the market value of the "available-for-sale" investment securities portfolio for some banking organizations. Our analysis is based on...

The Basel I Accord introduced a discontinuity in required capital for undrawn credit commitments. While banks had to set aside capital when they extended commitments with maturities in excess of one year, short-term commitments were not subject to a capital requirement. The Basel II Accord...

This study analyzes the relevance of capital adjustment and risk-taking adjustment during the financial tsunami when the banking industry was under capital regulation. Using the panel data of commercial banks in the USA and non-USA from 2003 to 2009, we consider the effects of financial freedom,...