Advanced Search
MyIDEAS: Login to save this article or follow this journal

The minimal confidence levels of Basel capital regulation

Contents:

Author Info

  • Alexander Zimper

Abstract

The Basel Committee on Banking Supervision sets the official confidence level at which a bank is supposed to absorb annual losses at 99.9 per cent. However, due to an inconsistency between the notion of expected losses in the Vasicek model, on the one hand, and the practice of Basel regulation, on the other hand, actual confidence levels are likely to be lower. This article calculates the minimal confidence levels that correspond to a worst case scenario in which a Basel-regulated bank holds capital against unexpected losses only. I argue that the probability of a bank failure is significantly higher than the official 0.1 per cent if, firstly, the bank holds risky loans and if, secondly, the bank was previously affected by substantial write-offs.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.palgrave-journals.com/jbr/journal/v15/n2/pdf/jbr20135a.pdf
File Function: Link to full text PDF
Download Restriction: Access to full text is restricted to subscribers.

File URL: http://www.palgrave-journals.com/jbr/journal/v15/n2/full/jbr20135a.html
File Function: Link to full text HTML
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Palgrave Macmillan in its journal Journal of Banking Regulation.

Volume (Year): 15 (2014)
Issue (Month): 2 (April)
Pages: 129-143

as in new window
Handle: RePEc:pal:jbkreg:v:15:y:2014:i:2:p:129-143

Contact details of provider:
Web page: http://www.palgrave-journals.com/

Order Information:
Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK
Email:
Web: http://www.palgrave-journals.com/pal/subscribe/index.html

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Ardagna, Silvia, 2004. "Fiscal Stabilizations: When Do They Work and Why," Scholarly Articles 2580047, Harvard University Department of Economics.
  2. Agnello, Luca & Castro, Vítor & Sousa, Ricardo M., 2012. "How does fiscal policy react to wealth composition and asset prices?," Journal of Macroeconomics, Elsevier, Elsevier, vol. 34(3), pages 874-890.
  3. Goodness C. Aye & Mehmet Balcilar & Rangan Gupta & Charl Jooste & Stephen M. Miller & Zeynel Abidin Ozdemir, 2012. "Fiscal Policy Shocks and the Dynamics of Asset Prices: The South African Experience," Working Papers, University of Nevada, Las Vegas , Department of Economics 1211, University of Nevada, Las Vegas , Department of Economics.
  4. Darrat, Ali F., 1990. "Stock Returns, Money, and Fiscal Deficits," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 25(03), pages 387-398, September.
  5. Athanasios Tagkalakis, 2009. "The effect of asset price volatility on fiscal policy outcomes," Working Papers, Bank of Greece 106, Bank of Greece.
  6. Afonso, António & Sousa, Ricardo M., 2011. "What are the effects of fiscal policy on asset markets?," Economic Modelling, Elsevier, Elsevier, vol. 28(4), pages 1871-1890, July.
  7. Charl Jooste, Guangling (Dave) Liu and Ruthira Naraidoo, 2013. "Analysing the Effects of Fiscal Policy Shocks in the South African Economy," Working Papers 351, Economic Research Southern Africa.
  8. Afonso, António & Sousa, Ricardo M., 2009. "The macroeconomic effects of fiscal policy," Working Paper Series, European Central Bank 0991, European Central Bank.
  9. Blake, Andrew P & Vines, David & Weale, Martin, 1988. "Wealth Targets, Exchange Rate Targets and Macroeconomic Policy," CEPR Discussion Papers, C.E.P.R. Discussion Papers 247, C.E.P.R. Discussion Papers.
  10. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  11. Vittorio Peretti & Rangan Gupta & Roula Inglesi-Lotz, 2012. "Do House Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model," Working Papers 201216, University of Pretoria, Department of Economics.
  12. Z. Chinzara, 2010. "Macroeconomic uncertainty and emerging market stock market volatility: The case for South Africa," Working Papers 187, Economic Research Southern Africa.
  13. repec:taf:applec:44:y:2012:i:34:p:4439-4454 is not listed on IDEAS
  14. Andrew Mountford & Harald Uhlig, 2008. "What are the Effects of Fiscal Policy Shocks?," NBER Working Papers 14551, National Bureau of Economic Research, Inc.
  15. Kasai Ndahiriwe & Rangan Gupta, 2008. "Financial Liberalisation and the Effectiveness of Monetary Policy on House Prices in South Africa," Working Papers 200803, University of Pretoria, Department of Economics.
  16. Sushanta Mallick & Mohammed Mohsin, 2010. "On the real effects of inflation in open economies: theory and empirics," Empirical Economics, Springer, Springer, vol. 39(3), pages 643-673, December.
  17. Bernardin Akitoby & Thomas Stratmann, 2006. "Fiscal Policy and Financial Markets," IMF Working Papers 06/16, International Monetary Fund.
  18. Ricardo M. Sousa, 2006. "Consumption, (Dis)Aggregate Wealth and Asset Returns," Computing in Economics and Finance 2006, Society for Computational Economics 212, Society for Computational Economics.
  19. Rafiq, M.S. & Mallick, S.K., 2008. "The effect of monetary policy on output in EMU3: A sign restriction approach," Journal of Macroeconomics, Elsevier, Elsevier, vol. 30(4), pages 1756-1791, December.
  20. Sushanta K. Mallick & Mohammed Mohsin, 2007. "Monetary policy in high inflation open economies: evidence from Israel and Turkey," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 12(4), pages 405-415.
  21. Stan Du plessis & Ben Smit & Federico Sturzenegger, 2007. "The Cyclicality Of Monetary And Fiscal Policy In South Africa Since 1994," South African Journal of Economics, Economic Society of South Africa, Economic Society of South Africa, vol. 75(3), pages 391-411, 09.
  22. Rangan Gupta & Marius Jurgilas & Alain Kabundi, 2009. "The Effect Of Monetary Policy On Real House Price Growth In South Africa: A Factor Augmented Vector Autoregression (Favar) Approach," Working Papers 200905, University of Pretoria, Department of Economics.
  23. Sonali Das & Rangan Gupta & Patrick T Kanda, 2010. "Bubbles in South African House Prices and their Impact on Consumption," Working Papers 201017, University of Pretoria, Department of Economics.
  24. Sousa, Ricardo M., 2010. "Housing wealth, financial wealth, money demand and policy rule: Evidence from the euro area," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 21(1), pages 88-105, March.
  25. Goodness C. Aye & Rangan Gupta & Mampho P. Modise, 2012. "Do Stock Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model," Working Papers 201224, University of Pretoria, Department of Economics.
  26. Muellbauer, John & Murphy, Janine Aron & Ant & Aron, Janine & Murphy, Anthony, 2007. "Housing Wealth, Credit Conditions and Consumption," ERES, European Real Estate Society (ERES) eres2007_257, European Real Estate Society (ERES).
  27. Jouchi Nakajima, 2011. "Time-Varying Parameter VAR Model with Stochastic Volatility: An Overview of Methodology and Empirical Applications," IMES Discussion Paper Series 11-E-09, Institute for Monetary and Economic Studies, Bank of Japan.
  28. Athanasios Tagkalakis, 2010. "Fiscal policy and financial market movements," Working Papers, Bank of Greece 116, Bank of Greece.
  29. Janine Aron & John Muellbauer, 2006. "Housing Wealth, Credit Conditions and Consumption," CSAE Working Paper Series 2006-08, Centre for the Study of African Economies, University of Oxford.
  30. Ardagna, Silvia, 2004. "Fiscal stabilizations: When do they work and why," European Economic Review, Elsevier, Elsevier, vol. 48(5), pages 1047-1074, October.
  31. Lossani, M & Tirelli, P, 1994. "Simple Rules, Fiscal Policy and Wealth Targets in a Monetary Union. An Alternative to the Maastricht Guidelines," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(4), pages 372-93, November.
  32. Beatrice D. Simo-Kengne & Manoel Bittencourt & Rangan Gupta, 2011. "House Prices and Economic Growth in South Africa: Evidence from Provincial-Level Data," Working Papers 201116, University of Pretoria, Department of Economics.
  33. Clive Coetzee, 2002. "Monetary Conditions and Stock Returns: A South African Case Study," Finance, EconWPA 0205002, EconWPA.
  34. Goodness C. Aye & Mehmet Balcilar & Rangan Gupta, 2011. "Long- and Short-Run Relationships between House and Stock Prices in South Africa: A Nonparametric Approach," Working Papers 201136, University of Pretoria, Department of Economics.
  35. Vítor, Castro, 2011. "Can central banks' monetary policy be described by a linear (augmented) Taylor rule or by a nonlinear rule?," Journal of Financial Stability, Elsevier, Elsevier, vol. 7(4), pages 228-246, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Michal Skorepa, 2014. "Concurrent Capital Buffers in a Banking Group," Occasional Publications - Chapters in Edited Volumes, Czech National Bank, Research Department, in: CNB Financial Stability Report 2013/2014, chapter 0, pages 128-136 Czech National Bank, Research Department.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pal:jbkreg:v:15:y:2014:i:2:p:129-143. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elizabeth Gale).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.