Bank liquidity shortages during the global financial crisis of 2007-2009 led to the introduction of liquidity regulations, the impact of which has attracted the attention of academics and policymakers. In this paper, we investigate the impact of liquidity regulation on bank lending. As a...

This study investigates whether banks and insurance corporations perform regulatory arbitrage by buying bonds with inflated credit ratings. We argue that credit rating based capital requirements incentivize banks and insurance corporations to hold more bonds with inflated credit ratings. We...

The paper proposes a sequential Bayesian updating approach to estimate default probabilities on rating grade level for no- and low-default portfolios.Bayesian sequential updating enables default probabilities to be obtained also for those rating grades for which no defaults have been...

Recognizing that many banks suffered trading losses that notably exceeded their minimum capital requirements during the recent crisis, the Basel Committee on Banking Supervision (2011) revised its regulatory framework for trading portfolios. In this paper, we compare: (1) the relative...

We study the impact of higher capital requirements on banks' decisions to grant collateralized rather than uncollateralized loans. We exploit the 2011 EBA capital exercise, a quasi-natural experiment that required a number of banks to increase their regulatory capital but not others. This...

This article proposes a sequential Bayesian updating approach to estimate default probabilities on rating grade level for no- and low-default portfolios. Bayesian sequential updating allows to obtain default probabilities also for those rating grades for which no defaults have been observed. The...

Economic policymakers express concern that procyclical lending by banks imperils financial stability. Prior research finds that banks that record timelier loan loss provisions originate more loans during downturns, consistent with loan-loss-provision timeliness mitigating loan-origination...

Large net loan charge-offs are frequently associated with large decreases in nonperforming loans and large increases in loan loss provisions, inducing a V-shaped relation between loan loss provisions and nonperforming loan changes. Failure to model the asymmetry attributable to net loan...

Large net loan charge-offs are frequently associated with large decreases in nonperforming loans and large increases in loan loss provisions, inducing a V-shaped relation between loan loss provisions and nonperforming loan changes. Failure to model the asymmetry attributable to net loan...

Under the Advanced Internal Rating-Based Approach of the Basel Accord banks are requested to calculate their Loss Given Default (LGD) aiming to reflect economic downturn conditions. We attempt to provide a methodology for the estimation of downturn effects on LGD with strict focus on the Basel...