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Basel I introduced capital requirements for undrawn commitments, but only for revolvers with an original maturity greater than one year. We use this regulatory discontinuity to estimate the impact of capital regulation on the cost and composition of credit. Following Basel I, short-term commitment fees declined relative to long-term commitments and issuance of short-term facilities increased. Our results highlight the sensitivity of credit provision to capital regulation, particularly for banks with less capital. We are able to infer that low-capital banks are willing to forego twice as much income from fees to reduce required regulatory capital by a dollar. [ABSTRACT FROM AUTHOR]

Basel 1, 2, and 3 norms have enabled improvement in the banking sector across the globe. In India, these norms along with recommendations of the Narasimham and Khan committees report have led to changes in the functions of the banks for better performance. The present study aims to make a comparative differential analysis of four types of banks in India. It is hypothesised that the performance of all the four types of banks - Public Sector Banks (PSBs), Private Sector Banks (Pvt _SBs), Foreign Banks (FBs), and All Scheduled Commercial Banks (ASCBs) have been one of statistical significance. This means that with the introduction of new norms, there is better coverage of management and risks of banks. The data for the study has been collected from the Basel website, websites of banks annual reports, RBI website, EPWRF India Time Series database, and the like. The main result of this study is that Basel norms are implemented in letter and spirit and have led to a higher level of performance of all the variables considered for the study. Given the global conditions of the threat of Bitcoins and other informal banking systems, there is an emergent need for Basel 4 norms. [ABSTRACT FROM AUTHOR]

This article examines to what extent regulatory import (RI), a common, but understudied mode of governance in regime complexes, was a separate factor of the global financial crisis in 2008. RI describes a specific mode of governance that occurs when regulators explicitly incorporate functionally important governance from an external forum to their own regulations, thus making their own performance dependent on external agency. While RI is associated with benefits, such as specialisation, it could cause unintended consequences. The one-sided dependence on external authority could result in the import of non-complementary governance or regulatory failures and undermine the regulator's performance. We illustrate our argument with the Basel Committee on Banking Supervision that imported governance authority from the International Accounting Standards Board and credit rating agencies. The paper finds two negative consequences of RI for the Basel Committee's regulatory performance in the 2008 financial crisis. First, uncoordinated changes of accounting rules increased pro-cyclical effects that exacerbated the banking crisis. Second, import of credit risk measurement from credit rating agencies led to misjudgement of risk exposure. [ABSTRACT FROM AUTHOR]

We compare various bank capital regulation regimes using a dynamic equilibrium model of relationship lending in which banks are unable to access the equity markets every period and the business cycle determines loans' probabilities of default. Banks hold endogenous capital buffers as a precaution against shocks that impair their future lending capacity. We find that Basel II is more procyclical than Basel I but makes banks safer, and it is generally superior in welfare terms. For high social costs of bank failure, the optimal capital requirements are higher but less cyclically varying, like those currently targeted by Basel III. [ABSTRACT FROM PUBLISHER]

The article establishes that it is necessary to introduce capital requirements for the Basel Committee on Banking Supervision to improve the regulation of banking activities. The conducted experiment on calculation of the bank's capital for operational risk with different methods showed non-profitability of the results, which requires further improvement of the processes of changes in the banking regulation system based on the Basel regulations. According to the calculations, there is a certain difference between the amounts of necessary reserves for bank's operational risk. At the same time, using different methods of calculation, we can see various trends over the last three years. [ABSTRACT FROM AUTHOR]

The BIS claims that the Basel III reforms otherwise known as Basel IV released in December 2017 completes the global reform of the regulatory framework as directed by the G20. This article traces the Basel I to IV journey and assesses its potential implications with focus on the fundamental issue of bank capital requirements. [ABSTRACT FROM AUTHOR]

This article traces the growing complexity of capital regulation with emphasis on decisions of the Basel Committee on Banking Supervision and bank regulators in the US. The pattern is one of increasingly complex regulations as each round of reform attempts to correct perceived weaknesses in the earlier regime. The outcome is a regulatory framework that is remarkably opaque, costly to monitor and enforce, and imposes heavy compliance costs on the regulatees, which are inevitably passed on in part to users of financial services. After a discussion of the most recent round of reforms, the article presents a table organized by five different regulatory capital numerators and five different denominators that define thirtynine different regulatory capital requirements, which Globally Significant US banks must meet. This way of organizing the various capital requirements shows how the number of capital ratios could be reduced by 75% with no loss of rigor. The conclusion speculates about why regulatory simplification seems so much more difficult to accomplish in the US than in other countries with much longer regulatory traditions. [ABSTRACT FROM AUTHOR]

This article studies loan activity in a context where banks have to follow Basel Accord-type rules and find financing with the households. Loan activity typically decreases when investment returns of entrepreneurs decline, and we study which type of policy could invigorate an economy in a trough. The authors find that an active monetary policy increases loan volume even when the economy is in good shape, while the introduction of an active capital requirement policy is also effective if it implies tightening of regulation in bad times. This is performed with a heterogeneous agent economy with occupational choice, financial intermediation, and aggregate shocks to the distribution of entrepreneurial returns. [ABSTRACT FROM AUTHOR]

Receiver operating characteristic (ROC) curves can be misleading when they are constructed with selected samples. In this article, we describe heckroccurve, which implements a recently developed procedure for plotting ROC curves with selected samples. The command estimates the area under the ROC curve and a graphical display of the curve. A variety of plot options are available, including the ability to add confidence bands to the plot. [ABSTRACT FROM AUTHOR]

This paper compares the impact of Basel Accords on the degree of competition in the German and UK banking industries. The banking sector is heavily regulated in terms of capital requirements, and the Basel Accords regard both the optimal level of capital that banks have to hold (Pillar I), and the complementary supervisory review of the banks’ compliance to the capital requirement rules (Pillar II), and the market discipline via disclosure, where the aim is enhancing banking transparency (Pillar III). We argue that if regulation raises the cost of entry into the banking industry and that of staying in the sector, there is no need for the existing banks to dissipate their profits in order to maintain the dominant position they eventually have. On the one hand, the regulation impacts profits in the short run by imposing higher capital requirements that are tighter for smaller banks; on the other hand regulation reduces the threat by potential entrants at no extra cost for the existing banks. The likely outcome of these incentives is that profit-oriented systems invest rents in new technology, able to escape the regulation that, in turn, prevents new entrants from entering into the field. [ABSTRACT FROM AUTHOR]

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The primary goal sought by the Bank of International Settlements and its committee on banking supervision (BCBS) is to make banks safer entities while maintaining a 'level playing field.' However, the question of whether this objective can be attained through enforcing capital requirements is still debatable due to the controversy surrounding the impact of regulatory standards, in particular, the Basel I and II accords on crises that occurred soon after the frameworks were introduced. While the impact of the latter remains controversial in the U.S. due to its effective implementation date, we observe that the newly introduced capital requirements could have played a role in the buildup to the subprime crisis. These results have direct policy implications with regard to ongoing revisions to Basel III, in particular the standardized approach for credit risk. [ABSTRACT FROM AUTHOR]

Many credit risk models are based on the selection of a single logistic regression model, on which to base parameter estimation. When many competing models are available, and without enough guidance from economical theory, model averaging represents an appealing alternative to the selection of single models. Despite model averaging approaches have been present in statistics for many years, only recently they are starting to receive attention in economics and finance applications. This contribution shows how Bayesian model averaging can be applied to credit risk estimation, a research area that has received a great deal of attention recently, especially in the light of the global financial crisis of the last few years and the correlated attempts to regulate international finance. The paper considers the use of logistic regression models under the Bayesian Model Averaging paradigm. We argue that Bayesian model averaging is not only more correct from a theoretical viewpoint, but also slightly superior, in terms of predictive performance, with respect to single selected models. [ABSTRACT FROM AUTHOR]

We study the asymptotic behavior of the difference between the values at risk (VaR) and for heavy-tailed random variables and with for application in sensitivity analysis of quantitative operational risk management within the framework of the advanced measurement approach of Basel II (and III). Here, describes the loss amount of the present risk profile and describes the loss amount caused by an additional loss factor. We obtain different types of results according to the relative magnitudes of the thicknesses of the tails of and . In particular, if the tail of is sufficiently thinner than that of , then the difference between prior and posterior risk amounts is asymptotically equivalent to the expectation (expected loss) of . [ABSTRACT FROM AUTHOR]

A topic of interest in recent literature is regulatory capital requirements for consumer loan portfolios. Banks are required to hold regulatory capital for unexpected losses, while expected losses are to be covered by either provisions or future income. In this paper, we show the set of efficient operating points in the market share and profit space for a portfolio manager operating under Basel II capital requirement and under capital constraints are a union of single-cutoff-score and double-cutoff-score operating points. For a portfolio manager to increase market-share beyond the maximum allowable under a single-cutoff score policy (eg, with binding capital constraints) requires granting loans to higher than optimal risk applicants. We show this result in greater portfolio risk but without an increase in regulatory capital requirement amount. The increase in forecasted losses is assumed to be absorbed by provisions or future margin income. Given portfolio managers take on higher risk under the same regulatory capital amount, our findings call for greater focus on provision amounts and future margin income under the supervisory review pillar of Basel II. This research raises the issue of whether the design of the regulatory formula for consumer loan portfolios is flawed. [ABSTRACT FROM AUTHOR]

This research is a starting point for the advanced study of the management of risks related to the provisions of the Basel III Agreement. The diversity of banking risks has recently seen an upward trend following the increase of competition between banks, the growth of international financial markets and the diversification of financial products and services. In order to strengthen the stability of the financial system, the implementation of the requirements under the Basel III Agreement is required. [ABSTRACT FROM AUTHOR]

In recent years, the counterparty credit risk measure, namely the default risk in over-the-counter (OTC) derivatives contracts, has received great attention by banking regulators, specifically within the frameworks of Basel II and Basel III. More explicitly, to obtain the related risk figures, one is first obliged to compute intermediate output functionals related to the mark-to-market position at a given time no exceeding a positive and finite time horizon. The latter implies an enormous amount of computational effort is needed, with related highly time consuming procedures to be carried out, turning out into significant costs. To overcome the latter issue, we propose a smart exploitation of the properties of the (local) time spent by the Brownian motion close to a given value. [ABSTRACT FROM AUTHOR]

The third pillar of the Basel II highlights the role of market discipline in easing the existing pressure on traditional monitoring measures like capital requirement and government supervision. This study test the effectiveness of market discipline in inducing prudential risk management practices among the East Asian banks over the 1995 to 2005 period. Market discipline is measured using information disclosure and interbank deposit holdings. We find that only the latter is an effective market discipline tool. However, the former becomes effective when market concentration is higher. We find that government owned, foreign owned and recapilatised banks are subject to market disciplining when disclosure in taken account but the opposite is true when interbank deposits is taken into account. Finally, we find that banks that disclose more risk related information hold more capital against their non-performing loan. The implications of the findings are discussed. [ABSTRACT FROM AUTHOR]

We analyse how the financing of R&D investment in corporate entities in Malaysia has been affected by the implementation of Basel II. We show the results by disaggregating into three sub sectors: (1) firms with large investments in capital, (2) those not as intensive, (3) and all firms for which we have data on default rates. Our results show that both before and after Basel II, firms do not borrow from external resources in order to build R&D expenditure strategies, and we argue that firms obtain financial resources from external sources for assets purposes rather than for investment and sales strategies. Therefore Basel II was not able to change firm's financing patterns in relation to R&D, and this fact should be important for policy makers when planning future Basel accords. We also show that firms operating in industries which are characterized by a lower incidence of intangible assets are less exposed to financial constraints. Finally, for those firms for which we have data on default rates in 2008, we show that intangible assets in these companies are more exposed to financial constraints. [ABSTRACT FROM AUTHOR]

This paper basically examines implementation of Basel Accords in Pakistan and investigates to what extent; these accords have positive or negative impact on economy. Two types of capital, Tier 1 and Tier 2 are examined under Basel II for the first time for a developing country. Both have impact on capital management but their mechanisms are different. For this purpose, two models, capital buffer model and provisioning models are used for the estimation through GMM one step and two steps for the period of 2001-2012 for 47 Pakistani commercial banks. Results show that Basel II Capital accord is pro-cyclical. Sample is divided into two regimes. Tier 1 capital is positively related and Tier 2 is negatively related to loan loss provisions in the pre Basel regime while the results are reversed in the post Basel regime. Business cycle fluctuations are positively related to loan loss provisions in the pre Basel regime and negatively related in the post Basel regime providing the evidence that new capital regulation is pro-cyclical. [ABSTRACT FROM AUTHOR]

The Basel Accords primarily focuses on prudential norms for bank capital under the aegis of which banks are required to ensure adequate capital to cover losses on account of significant risks in their business. Banks use deposits and borrowings for commercial and investment banking business. These two liabilities together form more than 90% of the total liabilities of a bank. Due to this, banks are considered as highly leveraged lending institutions. Further, on account of deregulation of the markets, banks are exposed to market risk in their commercial and investment banking business. Therefore they need to have adequate capital proportionate to risk. In the past banks maintained capital as per the provisions contained in the Banking Regulation Act of 1949. At present the Reserve Bank of India (RBI) has prescribed a capital adequacy ratio i.e. capital risk asset ratio (CRAR) under the Basel Accords. The capital of a bank must have a relationship with the risk it takes. This article is an effort to review the Basel Accords with regards to bank capital and liquidity ratios and its implications on the banking business. [ABSTRACT FROM AUTHOR]

The New Basel Accord allows internationally active banking organizations to calculate their credit risk capital requirements using an internal ratings based approach, subject to supervisory review. One of the modeling components is the loss-given default (LGD): it represents the credit loss for a bank when extreme events occur that influence the obligor ability to repay his debts to the bank. Among researchers and practitioners the use of statistical models such as linear regression, Tobit or decision trees is quite common in order to compute LGDs as a forecasting of historical losses. However, these statistical techniques do not seem to provide robust estimation and show low performance. These results could be driven by some factors that make differences in LGD, such as the presence and quality of collateral, timing of the business cycle, workout process management and M&A activity among banks. This paper evaluates an alternative method of modeling LGD using a technique based on advanced credibility theory typically used in actuarial modeling. This technique provides a statistical component to the credit and workout experts’ opinion embedded in the collateral and workout management process and improve the predictive power of forecasting. The model has been applied to an Italian Bank Retail portfolio represented by Overdrafts; the application of credibility theory provides a higher predictive power of LGD estimation and an out-of-time sample backtesting has shown a stable accuracy of estimates with respect to the traditional LGD model. [ABSTRACT FROM AUTHOR]

In the wake of the 2007 sub-prime financial crisis, global measures under the Basel Accord framework were taken to guarantee the preservation of adequate capital for the stability of the banking industry and to prevent another banking crisis. As a result, world bank capital ratios have increased. The primary objective of this paper is to investigate the impact of increased bank capital requirements in general and in particular those introduced under Basel II on the cost of intermediation in South Africa. Empirical evidence on the nexus between capital requirements and intermediation costs has significant implications on the lending market and therefore on the growth prospects of a country. Furthermore, higher intermediation costs undermines efforts towards financial inclusion particularly in South Africa where broader access to bank services for all remains a critical factor for redressing the challenges of high income inequalities. Utilizing annual bank-level data obtained from Bankscope for the period 2001 – 2012, the fixed effects estimation technique is applied on a balanced panel of ten banks constituting inter alia the four largest South African banks. For robustness, two alternative cost of intermediation variables are chosen, NIM1 which is net interest revenue to interest earning assets ratio while NIM2 is net interest revenue to average total assets ratio. Two proxy measures of capital requirements are employed namely the equity-to-total-assets ratio and a Basel II dummy variable to take the value one in 2008 and subsequent periods and zero otherwise. In addition to these variables, a number of bank-specific and macroeconomic variables that are hypothesized to influence the basic functions of banks are incorporated into the model. The results from estimating the fixed effects model show that a one percent increase in capital requirements lead on average to a range of 12 – 14 basis points increase in the cost of intermediation during the period of analysis. Empirical evidence from the study also indicate that the Basel II capital requirements effected in January 2008 contributed to increased cost of intermediation by an average 7 basis points for the period 2008 – 2012. We conclude that high capital requirements are associated with increased costs of intermediation. We therefore caution that while maintaining adequate capital levels is crucial for obvious reasons, there is need for supervisory authorities to ensure that such regulation is effective and well-balanced to guarantee safety and stability of the sector without endangering the ability of the banks to service the economy. [ABSTRACT FROM AUTHOR]

The procyclicality of the regulatory capital requirement in the aftermath of the international finance crisis have been paid a lot of attention by researcher and regulators. It is pointed out that the risk-sensitive capital requirement in Basel Accord II drives the problem of procyclicality which amplified the economic cycle fluctuation and made the banking system a shock amplifier while not a shock absorber. In this paper, on the basis of China's 16 major commercial banks in 2004-2014 panel data, the researcher analyzes the relationship between macro-economic cycle and capital adequacy ratio to test whether there exists procyclical effect or not within. The empirical result shows that the capital adequacy ratio changes have procyclical effect on China's commercial banks. [ABSTRACT FROM AUTHOR]

In the period following the global financial crisis, high-profile regulatory breaches and other instances of banks' misconduct triggered widespread concern that the culture and standards of conduct in banks had declined to a point of unacceptability. The crisis also brought into sharp focus the inability of banks to completely and accurately report the risks they accept in order to create shareholder value. These events and circumstances culminated in a crisis of trust between banks and their stakeholders which include governments, regulators, investors and customers. In this same period, regulators focused on their primary 'capitalat- risk' regimes administered through the Basel capital accords, reinforcing additional levels of capital as a bank's primary protection against unexpected losses. At the same time, Basel introduced 'firm-at-risk' mandates that required improvements in banks' control over risk data and associated technology infrastructure. The most significant game-changing post-crisis regulatory mandate in this regard is the Basel Committee's principles for effective risk data aggregation and risk reporting, also known as BCBS 239. This new mandate requires banks: to implement controls over risk data that are as robust as those applicable to accounting data; to create accurate and single authoritative sources of risk data; and to ensure the precision, timeliness, comprehensiveness and adaptability of risk reporting. BCBS 239 effectively sets the parameters for enterprise risk management (ERM) and provides the foundation on which risk governance and risk cultures can positively evolve. Whereas BCBS 239 expressly states that a common risk metric for all forms of risk is not required, the authors challenge this thinking and argue that it is only through the adoption of a common risk metric that the objectives of BCBS 239 can be reasonably achieved. Part 1 of this paper, published in Journal of Risk Management in Financial Institutions Volume Nine, Number Two (pp. 130-146), explains why bankers -- risk managers and accountants in particular -- must view the need for the convergence of finance and risk systems within a common control and reporting framework as an imperative. Part 2 describes the 'Risk Accounting' methodology and its introduction of both a common measurement framework for all forms of risk and a common risk metric, the risk unit (RU). [ABSTRACT FROM AUTHOR]

Under Basel II and Basel III accords, banks can use Internal-Rating-Based (IRB) approach to estimate their own loss given default (LGD). They need to consider a downturn LGD provided by Basel Committee on Banking Supervision (BCBS) to address unexpected loss under the foundation IRB approach. Comparing our measure with the LGD of Basel foundation IRB approach (BLGD), we find DLGD of Taiwan' s companies are much lower than BLGD. This strict regulatory standard may lead to higher capital used and reduce more lending activities for Taiwan's bank sectors. We also verify the characteristic on DLGD by using the macro-factor and probability of default and obtain significant results. These research results not only calibrate LGD to past economic downturns but also build more accurate credit risk pricing for advanced Internal Rating Based (IRB). [ABSTRACT FROM AUTHOR]

In line with Basel and Reserve Bank of India (RBI) directives, all banks in India implemented basic indicator approach (BIA) of operational risk capital computation by March 2009. RBI issued guidelines on The standardised approach (TSA) of operational risk in March 2010. In this paper, an attempt is made to estimate Operational Risk Capital Charges (ORCCs) of Public Sector and Private Sector Banks in India for the period from 2003-2004 to 2012-2013 under both, BIA and TSA. The results of this study indicate that operational risk capital charges vary, depending upon bank's size, despite of risk management systems in place. The capital computation of banks using BIA and TSA proves onerous for large banks like State Bank of India and ICICI Bank. The study also points out that capital adequacy ratio (CAR) and Tier I capital ratio of the banks have declined with introduction of additional capital charges for operational risk. Hence, this paper suggests that it is important for banks to have a well-defined business line mapping framework in place, for implementation of TSA approach. [ABSTRACT FROM AUTHOR]

Purpose – The study aims to assess credit risk management practices within financial institutions in Ghana. Specifically, the study compares credit risk management practices of listed banks in Ghana with Basel II (1999). Design/methodology/approach – The analysis is based on data gathered from varied sources, namely, use of questionnaires, analysis of internal credit policies and procedure manuals and semi-structured interviews and discussions with credit risk managers of the selected banks in May 2007 and October 2014. Findings – Overall, the credit risk management practices within listed banks in Ghana are in line with sound practices. The only dissimilarity, however, is the role of the board of directors in defining acceptable types of loans and maximum maturities for the various types of loans. The listed banks in Ghana are also exposed to credit risks associated with granting both corporate and small business commercial loans and the use of collaterals to mitigate their credit risk exposures. Practical implications – Banks in Ghana should consider developing the skills of all their personnel and appropriately motivating those involved in the credit risk management processes to ensure that they carry out this process efficiently. Originality/value – Research into credit risk management in the banking industry from the Ghanaian perspective remains scant. This study is, therefore, timely, and its findings are invaluable for the efficient management of credit risk in the banking industry. This study provides policy recommendations which will enhance shareholder value and, in this way, contribute to greater stability in the banking sector in developing countries, in particular. [ABSTRACT FROM AUTHOR]

Indian banks have moved toward a more stringent regime of risk management with the implementation of Basel II guidelines under the standardised approach. While banks may have benefited from the increasing sensitivity to risk, there have also been challenges for interpreting their risk performance. It has been observed that some banks report lower risk, measured as risk-weighted asset density, for their portfolios and yet have higher gross non-performing assets than others. Such an observation raises the question as to how the implementation of Basel II guidelines would lead to improvements in the risk performance of banks. The study reviews the structure of the Basel II risk weightings and determinants of the risk-weighted and gross non-performing assets of banks, before analysing the empirical data of 20 banks in India for the period 2009-2010 to 2013-2014. It has been found that the business mix of banks, their client portfolios and lending orientation strongly determine the risk of their asset portfolios, but not their default performance. While the structure of the Basel II standardised approach may provide a certain flexibility to banks to project the riskiness of their assets, the default performance may be determined by other factors such as conditions in the macro-economic environment and capabilities for credit and non-performing asset management. [ABSTRACT FROM AUTHOR]

Indian commercial banks have been able to comply with the minimum statutory capital requirements as per Basel I and Base II norms and have remained resilient to the global financial crisis to a large extent. Basel III capital regulation has been implemented in India from April 1, 2013 in phases and will be fully implemented as on March 31, 2019. The implementation of Basel III norms would considerably increase the capital requirement of Indian banks. The objective of the study is to examine how Indian banks performed during Basel I and Basel II regime and thus draw an inference on the strength and stability of Indian banks to adopt much stringent capital regulation under the Basel III framework. Based on the performance of PSU banks during the Basel II period, we have also estimated additional capital requirement of them during the implementation phase of Basel III. The performance has been measured in terms of business growth, profitability and soundness indicators of scheduled commercial banks (SCBs) in India during the period 1999 to 2013. The study finds that private banks and foreign banks are in a stronger position as compared to PSU banks. [ABSTRACT FROM AUTHOR]

Global regulatory standard setting is one of the most lucrative battlefields of the international political economy. Asymmetric influence and regulatory capture in setting such standards can undermine the regulation of economic activity, with negative externalities for the society. Scholars of International Political Economy, and of global finance in particular, are in the process of revealing the mechanisms underlying such regulatory capture and failure. I contribute to this analysis with an empirical evaluation of the mechanisms underlying influence in setting such standards. I assess the influence of nine different national, transnational, and international actors in the case of global banking regulation (the Basel II framework of the Basel Committee on Banking Supervision). On the basis of a quantitative–qualitative assessment, I develop integration and rejection rates to measure influence in global regulation. My findings reveal that the key dynamic in setting global standards is the simultaneous influence of national (competition state) coalitions of politicians and firms as well as transnational harmonization coalitions of transnationally active firms and regulators. The results provide a basis for a new argument to understand regulatory capture and failure. [ABSTRACT FROM PUBLISHER]

We shed new light on the role of borrower characteristics in mortgage product choice, and how these are impacted by regulatory capital requirements. Using rich loan-level data from the Australian market, we analyse the borrower idiosyncratic risk effects on the choice between variable-rate mortgages and other mortgages with reduced initial payments. We find that income, wealth and mobility risks play a role in product choice. We investigate regulatory capital requirements in a market where banks hold mortgage risk on balance sheet and find that the Basel capital discounts based on loan-to-valee ratios divide otherwise similar borrowers in their mortgage choices. [ABSTRACT FROM AUTHOR]

This paper suggests formulas able to capture potential strong connection among credit losses in downturns without assuming any specific distribution for the variables involved. We first show that the current model adopted by regulators (Basel) is equivalent to a conditional distribution derived from the Gaussian Copula (which does not identify tail dependence). We then use conditional distributions derived from copulas that express tail dependence (stronger dependence across higher losses) to estimate the probability of credit losses in extreme scenarios (crises). Next, we use data on historical credit losses incurred in American banks to compare the suggested approach to the Basel formula with respect to their performance when predicting the extreme losses observed in 2009 and 2010. Our results indicate that, in general, the copula approach outperforms the Basel method in two of the three credit segments investigated. The proposed method is extendable to other differentiable copula families and this gives flexibility to future practical applications of the model. [ABSTRACT FROM AUTHOR]

In response to the deficiencies in financial regulation revealed by the global financial crisis a new capital regulatory standard, Basel III, has been introduced. This builds on the previous regulations known as Basel I and Basel II. We look at how the interest rate charged to maximise a lender's profitability is affected by these three versions of the Basel Accord under three types of pricing: a fixed-price model, a two-price model and a variable risk-based pricing model. We investigate the result under two different scenarios. First, a fixed price of capital, and second, a fixed amount of equity capital available. We develop an iterative algorithm for solving the latter based on solution approaches to the former. The riskiness of the portfolio has more significance than the Basel Accord requirements but the move from Basel I to Basel II has more impact than that from Basel II to Basel III. [ABSTRACT FROM AUTHOR]

Purpose – This paper aims to discuss ideas of factoring in external loss data to the internal loss data sets to obtain a true picture of operational losses for non-bank financial services firms, focusing on a case study of the interdealer brokers business and a specific Basel II category of the operational risk capital charges. As it transpires, financial services firms are increasingly required by regulators to merge external loss data with their internal data sets when using a loss distribution approach. However, there is a significant constrain on the availability and completeness of the external data for non-bank financial services firms. Design/methodology/approach – Embarking on a modified Kaplan-Meier method is a clever way of factoring in external loss data into the internal data set. It allows non-bank financial firms to choose which fragments of the data constitute “the best fit”. In choosing the external data, this paper posits that such firms need to rely on loss-type events that display similar patterns in probabilities of occurrence. This method eliminates over-reliance on the external data that are specific for a different entity. One of the most important assumption underpinning the method presented in this paper is the fact that constant time intervals between the recorded operational loss events are assumed. Hereto, reaching a certain level of loss is used as the event of interest in both groups. For simplification purposes and to eliminate the noise and capture significant losses, we set this level as a multiplicity of the interdealer broker’s loss threshold. Findings – Obtaining external loss data is difficult for the non-bank financial services firms. Furthermore, institutions operating as interdealer brokers are exposed to different levels of operational risk that affect their own Advanced Measurement Approach to capital charges under Basel II. The existing consortium data sets are not suitable for non-bank financial institutions. With this in mind, the non-bank firms should select only the parts of the external data that fit their business environment. Originality/value – This paper should be of interest to any financial services firms that is required by regulators to merge its internal loss data sets with external loss data. Furthermore, this paper makes strong recommendations for regulators who should understand that the contemporary operational risk consortium data sets are not suitable for non-bank financial services firms. [ABSTRACT FROM AUTHOR]

The Basel II internal ratings-based (IRB) approach to capital adequacy for credit risk plays an important role in protecting the banking sector against insolvency. We outline the mathematical foundations of regulatory capital for credit risk, and extend the model specification of the IRB approach to a more general setting than the usual Gaussian case. It rests on the proposition that quantiles of the distribution of conditional expectation of portfolio percentage loss may be substituted for quantiles of the portfolio loss distribution. We present a more compact proof of this proposition under weaker assumptions. Then, constructing a portfolio that is representative of credit exposures of the Australian banking sector, we measure the rate of convergence, in terms of number of obligors, of empirical loss distributions to the asymptotic (infinitely fine-grained) portfolio loss distribution. Moreover, we evaluate the sensitivity of credit risk capital to dependence structure as modeled by asset correlations and elliptical copulas. Access to internal bank data collected by the prudential regulator distinguishes our research from other empirical studies on the IRB approach. [ABSTRACT FROM AUTHOR]

Changes in banking regulation and control, inherent in the Basel Accord provisions, are one of the sources of innovation in banks. Any changes, both inside and outside an organization, provide business entities with a number of opportunities for further development. In this context, analysis and study of the prospects offered by the introduction of new Basel II, 2.5 and III provisions hold particular importance and relevance. This article provides an overview of the changes in banking regulation, and shows their impact on innovative reforms in the banking sector. [ABSTRACT FROM AUTHOR]

Although Basel II fortified the first two pillars with market transparency enhancing Pillar III disclosures and encouraged the usage of major Credit Rating Agencies (CRAs) such as Moody's, Standard and Poor's, and Fitch as quasi governmental authorities to overcome asymmetric informational problems on risk and capital adequacy fronts of the global financial system, the recent global financial crisis has proven just the opposite. The banks and regulators were not in a position to truly assess the risk and capital adequacy frameworks of the global and domestic financial institutions based on the assessments of the rating agencies. To overcome the problem of informational asymmetry for the market participants, the Basel Committee on Banking Supervision set out new proposals for enhanced Pillar III disclosures in the areas of credit risks and capital reporting standards on the forefront of Basel III that would come into effect on April 1, 2016. This paper is a critical evaluation of the new reporting proposals of BCBS within the critical role of the credit rating agencies. [ABSTRACT FROM AUTHOR]

Purpose – This study aims to analyze how recent regulation changes, namely, Basel II and the New Turkish Commercial Code, affect small and medium-sized enterprises (SMEs) and the relationship between SMEs and banks in Turkey through the eyes of SME managers. The author believes that the answers could differ for various types of SME. Design/methodology/approach – In-depth interviews enabled a refined analysis of the effects of regulations in the eyes of firms’ representatives. The study was conducted for SMEs in the Anatolia Organized Industrial Zone. Findings – One of the important conclusions of the paper is the fact that the loan approval process has been standardized and centralized. The results also show that regulations have different effects on larger and already stable firms than on smaller and/or start-up SMEs that do not have sufficient resources for the transformation required by regulations. Originality/value – First, this study is a qualitative study that has the advantage of reaching richer and more plausible information that cannot be obtained by analyzing the numbers. Second, this study tries to analyze the perceptions of SMEs’ financial representatives rather than the perspectives of bank representatives. Finally, to the author’s knowledge, there has been no other study that analyzed a developing country on this topic. [ABSTRACT FROM AUTHOR]

The paper examines the implementation of the Basel I Capital Accord in Africa and evaluates the efficacy and feasibility of adopting the Basel II Accord. It also analyses the relevance of the new Basel III Capital Accord for Africa. Most African countries have implemented Basel I, which has become a valuable component of the prudential regulatory framework. Adopting pillar 1 of Basel II will prove much more challenging because of its complexity and this may not be feasible for most African countries. Basel III raises minimum capital ratios. Although most banks in Africa already hold more capital than the minimum required under Basel III, raising the minimum capital adequacy requirements might still benefit African countries over the long term if it helps to ensure that their banking systems continue to hold high levels of capital to safeguard against the risks they face, which are generally larger than the risks faced by banks in advanced economies. [ABSTRACT FROM AUTHOR]

This paper analyses the data of tier-1, tier-2 and overall capital of SBI and its associate banks under basel-1 and basel-2 for the two years i.e. 2009 and 2010. Our basic premise is that as financial system is becoming more and more complex and banking system as a whole is getting exposed to new risks, there is likelihood that Indian banks are also getting exposed to some of these toxic assets. We also know that institutional mechanism is evolving year by year, therefore the capital adequacy requirements under progressive capital norms must ideally increase. However, the overall minimum capital to risk- weighted assets and minimum tier-1 capital requirement is the same under basel-1 and basel-2 i.e. 9% and 6%, respectively. In this paper, we are examining the capital norms from static point of view. From static point of view, we are examining the norms in their current form i.e. by taking the value of hypothesized mean difference as zero since minimum capital requirement is same in both basel-1 and basel-2. [ABSTRACT FROM AUTHOR]

While the Basel Accords of 1988 and 2004 (Basel I and Basel II) ostensibly set out to regulate bank risk at the international level, they were effectively in the grip of neoliberal beliefs in the self-regulating potential of free markets. In 2009–2011, the Basel Accords were revised once more with the intent of establishing financial regulations that would prevent future stampedes on the financial markets. This could be seen as the introduction of a new order in which markets are, indeed, governed through standards. However, this paper argues that Basel III is, like its predecessors, caught in rhetorically charged performation struggles in which neoliberal principles continue to hold sway, and may, at best, be seen as postliberalism in the making. Beginning from a reconceptualization of the theory of performativity of economics that highlights the contingent and political nature of performative agency, the empirical argument is substantiated through textual–intertextual analysis of the rhetorical circulation of affective signs in the Basel III negotiations. [ABSTRACT FROM AUTHOR]

Bank regulation is supposed to reduce the probability of bank failure and, if a failure occurs, to contain the damage so that system-wide problems are unlikely. The current regulatory framework, known as Basel II, is based, among other things, on risk-adjusted capital requirements. This framework has failed in the recent global financial crisis. Some believe that one of the culprits is the exclusion of so-called shadow banks (for example, hedge funds and investment banks) from regulation. We find little support for this assumption in our simulations. To the contrary, our simulations reveal that extending the same regulation to more entities is likely to produce very synchronous behaviour and thus exacerbate contagion and market crashes. On the other hand, the new size-adjusted regulation (the so-called leverage ratio) that has been proposed in Basel III appears to be more robust. [ABSTRACT FROM AUTHOR]

This paper deals with a case study of credit risk scoring models at Industrial Bank. The aim of this research is to investigate how a Malaysian financial institution developed and integrated credit risk scoring models with current organisational needs and evaluation of best practices for university-industry collaboration on this initiative. Attempts were made to categorise the credit risk scoring models initiative according to a variety of statistical techniques from modeling. This is an exploratory study which uses qualitative research methodology. Analysis of document from company annual reports as well as articles from journal, Bank Negara Malaysia, (BNM) regulatory reports as well as working papers and semistructured interviews were conducted to identify the organisational needs as a result of context and task. A company-wide development system for credit risk scoring model was effectively integrated to provide a direct support to competence management endeavor. The company's credit risk scoring models initiatives have also resulted in managerial implications such as increased effectiveness of risk management through measuring the riskiness of each customer and automated the whole process, thereby leading to significant efficiency improvements. Thus, scoring models help banks to control credit risks. Going forward, credit risk scoring model is to become the best practice approach of the receivables management process and is essential to effective credit risk management. [ABSTRACT FROM AUTHOR]

The article offers information on the China's changing roles in the formation, development and implementation of international banking regulation with reference to successive sets of Basel capital rule,including Basel I, Basel II and Basel III. It discusses the institutional interests of China's banking supervisory authorities such as the China Banking Regulatory Commission in enforcing strict capital standards and rules through regulatory mandates under international banking and financial law.