Capital Accord (capital + accord)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting40%

Selected Abstracts

Incorporating Collateral Value Uncertainty in Loss Given Default Estimates and Loan-to-value Ratios

EUROPEAN FINANCIAL MANAGEMENT, Issue 3 2003
Esa Jokivuolle
Abstract We present a model of risky debt in which collateral value is correlated with the possibility of default. The model is then used to study the expected loss given default, primarily as a function of collateral. The results obtained could prove useful for estimating losses given default in many popular models of credit risk which assume them constant. We also examine the problem of determining sufficient collateral to secure a loan to a desired extent. In addition to bank practitioners, regulators might find our analysis useful in reviewing banks' lending standards relative to current collateral values. In particular, the current proposals for The New (Basel) Capital Accord involve options for the use of banks' own loss given default estimates which might benefit from the analysis in this paper. [source]

Bank Capital Regulation in Contemporary Banking Theory: A Review of the Literature

FINANCIAL MARKETS, INSTITUTIONS & INSTRUMENTS, Issue 2 2001
João A. C. Santos
This paper reviews the theoretical literature on bank capital regulation and analyzes some of the approaches to redesigning the 1988 Basel Accord on capital standards. The paper starts with a review of the literature on the design of the financial system and the existence of banks. It proceeds with a presentation of the market failures that justify banking regulation and an analysis of the mechanisms that have been suggested to deal with these failures. The paper then reviews the theoretical literature on bank capital regulation. This is followed by a brief history of capital regulation since the 1988 Basel Capital Accord and a presentation of both the alternative approaches that have been put forward on setting capital standards and the Basel Committee's proposal for a new capital adequacy framework. [source]

Optimal auditing in the banking industry

OPTIMAL CONTROL APPLICATIONS AND METHODS, Issue 2 2008
T. Bosch
Abstract As a result of the new regulatory prescripts for banks, known as the Basel II Capital Accord, there has been a heightened interest in the auditing process. Our paper considers this issue with a particular emphasis on the auditing of reserves, assets and capital in both a random and non-random framework. The analysis relies on the stochastic dynamic modeling of banking items such as loans, reserves, Treasuries, outstanding debts, bank capital and government subsidies. In this regard, one of the main novelties of our contribution is the establishment of optimal bank reserves and a rate of depository consumption that is of importance during an (random) audit of the reserve requirements. Here the specific choice of a power utility function is made in order to obtain an analytic solution in a Lévy process setting. Furthermore, we provide explicit formulas for the shareholder default and regulator closure rules, for the case of a Poisson-distributed random audit. A property of these rules is that they define the standard for minimum capital adequacy in an implicit way. In addition, we solve an optimal auditing time problem for the Basel II capital adequacy requirement by making use of Lévy process-based models. This result provides information about the optimal timing of an internal audit when the ambient value of the capital adequacy ratio is taken into account and the bank is able to choose the time at which the audit takes place. Finally, we discuss some of the economic issues arising from the analysis of the stochastic dynamic models of banking items and the optimization procedure related to the auditing process. Copyright © 2007 John Wiley & Sons, Ltd. [source]

Do markets enhance convergence on international standards?

REGULATION & GOVERNANCE, Issue 4 2007
The case of financial regulation
Abstract Why do countries that did not participate in the establishment of international standards converge on them in the absence of external coercion? The market-based perspective asserts that market forces enhance cross-national convergence on international standards. This paper challenges the market-based perspective, focusing on compliance with the 1988 Basel Capital Accord in South Korea and Taiwan. First, it argues that adoption of the Basel Capital Accord by these countries was mainly driven by their regulatory authorities' concern about the potential risk of foreign market closure to noncompliant banks. Second, it demonstrates that enforcement by the two countries' regulatory authorities was crucial in ensuring compliance. These findings suggest that national regulatory authorities are still key actors in voluntary convergence on international standards. [source]

Continuous-time stochastic modelling of capital adequacy ratios for banks

APPLIED STOCHASTIC MODELS IN BUSINESS AND INDUSTRY, Issue 1 2006
Casper H. Fouche
Abstract Regulation related to capital requirements is an important issue in the banking sector. In this regard, one of the indices used to measure how susceptible a bank is to failure, is the capital adequacy ratio (CAR). We consider two types of such ratios, viz. non-risk-based (NRBCARs) and risk-based (RBCARs) CARs. According to the US Federal Deposit Insurance Corporation (FDIC), we can further categorize NRBCARs into leverage and equity capital ratios and RBCARs into Basel II and Tier 1 ratios. In general, these indices are calculated by dividing a measure of bank capital by an indicator of the level of bank risk. Our primary objective is to construct continuous-time stochastic models for the dynamics of each of the aforementioned ratios with the main achievement being the modelling of the Basel II capital adequacy ratio (Basel II CAR). This ratio is obtained by dividing the bank's eligible regulatory capital (ERC) by its risk-weighted assets (RWAs) from credit, market and operational risk. Mainly, our discussions conform to the qualitative and quantitative standards prescribed by the Basel II Capital Accord. Also, we find that our models are consistent with data from FDIC-insured institutions. Finally, we demonstrate how our main results may be applied in the banking sector. Copyright © 2005 John Wiley & Sons, Ltd. [source]