|
| ||
|
|
||
Capital Adequacy (capital + adequacy)
Selected AbstractsThe New Basel Capital Adequacy FrameworkECONOMIC NOTES, Issue 3 2001Giovanni Carosio The Basel Committee on Banking Supervision is about to publish a second consultative paper on the reform of the 1988 Accord on capital adequacy. The new document takes into account the comments received on the June 1999 consultative paper, gives a much clearer picture of crucial aspects of the reform that were only presented in very general terms in the earlier paper, and quantifies most of the parameters that will be needed to calculate the capital requirements. Although considerable progress has been made towards reaching operational status, several aspects of the regulation still need to be worked out and further reflection is needed on the best way to tackle some of the more problematic issues that have been identified. Comments, suggestions, criticisms such as today's seminar will certainly provide, are therefore most welcome. There will be time to take them into consideration, as the final draft of the regulation will not be completed before the end of 2001. My presentation is divided into three parts: I first illustrate the objectives of the reform, then describe the essential features of the new regulation, and finally discuss the possible impacts of its implementation. (J.E.L. G21, G28). [source] The Macroeconomic Implications of Regulatory Capital Adequacy Requirements for Korean BanksECONOMIC NOTES, Issue 1 2000G. Choi The capital adequacy requirement, combined with the flight to quality, contributed to a drastic credit slowdown and a sharp recession in Korea in the aftermath of the financial crisis. Since most banks were placed under the strengthened capital adequacy constraints, they reduced loans to firms with high credit risks. As a result, bank-dependent small and medium-sized enterprises (SMEs) were badly hit, and eventually demand for bank loans fell. The reduction in loans was most visible among banks with poor capital adequacy, yet the overall change in bank portfolios had a disproportionately large negative influence on financial conditions for SMEs. In conclusion, the banks' response to capital adequacy requirements resulted in changes in the loan/bond ratio which, in turn, reduced loans to SMEs and caused a sharp cut in production. The resulting contraction in SME production created a polarized industrial structure and a chronic depression in the traditional sectors of the economy. The introduction of capital adequacy requirements (CARs) in the wake of financial crisis worsened conditions for SMEs and weakened the validity of the CARs that were mainly necessitated by successive failures among larger firms. [source] Transitional credit modelling and its relationship to market value at risk: an Australian sectoral perspectiveACCOUNTING & FINANCE, Issue 3 2009David E. Allen G1; G21 Abstract Internal credit risk modelling is important for banks for the calculation of capital adequacy in terms of the Basel Accords, and for the management of sectoral exposure. We examine Credit Value at Risk (VaR), Conditional Credit Value at Risk (Credit CVaR) and the relationship between market and credit risk. Significant association is found between different Credit CVaR methods, and between market and credit risk. Simpler Credit CVaR methods are found to be viable alternatives to more complex methodology. The relationship between market and credit risk is used to develop a new model that allows banks to incorporate industry risk into transition modelling, without macroeconomic analysis. [source] Will Basel II Lead to a Specialization of Unsophisticated Banks on High-Risk Borrowers?,INTERNATIONAL FINANCE, Issue 1 2005Bertrand Rime The stability of the banking sector is an essential precondition for a well-functioning economy. Enhancing this stability was one of the main motivations for the elaboration of the new capital adequacy framework, Basel II. The present paper examines the impact of Basel II on risk allocation in the banking sector and its implications for bank capital adequacy. Basel II introduces a two-layer framework for the calculation of the capital requirement for credit risk: (i) a very risk-sensitive internal ratings-based (IRB) approach that will be used by large sophisticated banks and (ii) a standardized approach, much less risk sensitive, which will be used by smaller, less sophisticated banks. We show that because the two bank types compete in the loan market, Basel II may induce sophisticated banks to specialize on low-risk borrowers and unsophisticated banks to specialize on high-risk borrowers. As a consequence, we may face a trade-off between the capital adequacy of the two types of banks, with an ambiguous net effect on financial stability: the risk sensitivity of the IRB approach improves the capital adequacy of sophisticated banks, but it deteriorates the capital adequacy of unsophisticated banks, as their increased risk taking is not appropriately reflected by the standardized capital requirement. [source] Optimal auditing in the banking industryOPTIMAL CONTROL APPLICATIONS AND METHODS, Issue 2 2008T. 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] Identifying Financial Distress Indicators of Selected Banks in AsiaASIAN ECONOMIC JOURNAL, Issue 1 2004Shahidur Rahman The banking sector plays a pivotal role in the economic development of most Asian countries. In 1997, a full-fledged banking and financial crisis took place in South Asian countries. Many banks had to be bailed out by their governments. It is believed that an examination of indicators that led to the problems suffered by banks in this region will be of enormous benefit. Models were developed for each country that identified banks experiencing financial distress as a function of financial ratios. The countries in the study include Indonesia, South Korea and Thailand. The banking sectors of these three countries are ideal for this study, as the banks enjoyed profitability during the pre-crisis period and were the most severely affected by the financial crisis in 1997. Logistic regression was used to analyze the data sample from 1995 to 1997. In the findings, capital adequacy, loan management and operating efficiency are three common performance dimensions found to be able to identify problem banks in all three countries. It is hoped that the financial ratios and results of the models will be useful to bankers and regulators in identifying problem banks in Asia. [source] | ||||||||||