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The effects of national discretions on banks

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  • Isabel Argimón

    ()
    (Banco de España)

  • Jenifer Ruiz

    ()
    (European University Institute, Florence)

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    Abstract

    The EU's transposition of Basel II into European law has been done through the Capital Requirements Directive (CRD). Although the Directive establishes, in general, uniform rules to set capital requirements across European countries, there are some areas where the Directive allows some heterogeneity. In particular, countries are asked to choose among different possibilities when transposing the Directive, which are called national discretions (ND). The main objective of our research is to use such observed heterogeneity to gather empirical evidence on the effects on European banks of more or less stringency and more or less risk sensitivity in capital requirements. Following the approach in Barth et al. (2004, 2006, 2008) we build index numbers for groups of national discretions and applying Altunbas et al. (2007) approach, we provide evidence on their effect on banks' risk, capital, efficiency and cost. We show that more stringency and more risk sensitivity in regulation not always result in a trade off between efficiency and solvency: the impact depends on the area of national discretion on which such characteristics apply.

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    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/10/Fic/dt1029e.pdf
    File Function: First version, September 2010
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    Bibliographic Info

    Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 1029.

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    Length: 43 pages
    Date of creation: Sep 2010
    Date of revision:
    Handle: RePEc:bde:wpaper:1029

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    Keywords: Prudential regulation; capital requirements; bank capital; risk; efficiency;

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    1. Fulbert Tchana Tchana, 2009. "The Empirics of Banking Regulation," Working Papers 128, Economic Research Southern Africa.
    2. Javier Andrés & Óscar Arce & Carlos Thomas, 2013. "Banking Competition, Collateral Constraints, and Optimal Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(s2), pages 87-125, December.
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