From Basel I To Basel Ii: An Analysis Of The Three Pillars
AbstractThis paper presents a dynamic model of banking supervision to analyze the impact of each of Basell II three pillars on banks’ risk taking. We extend previous literature providing an analysis of ratings-based supervisory policies. In Pillar 2 (supervisory review) the supervisor audits more frequently low rated banks and restricts their dividend payments in order to build capital. In Pillar 3 (market discipline) the supervisor reduces the level of deposit insurance coverage compelling not-fully insured depositors to adjust interest rates contingent on the bank’s external rating. We also analyze the risk sensitiveness of Pillar 1 (capital requirements) concluding that all three Pillars reduce banks’ risk taking incentives.
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Bibliographic InfoPaper provided by CEMFI in its series Working Papers with number wp2007_0704.
Date of creation: Jun 2007
Date of revision:
Capital requirements; market discipline; ratings-based policies; risk taking decisions; supervisory review.;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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