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Basel II and the Value of Bank Differentiation

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  • Hege, Ulrich

    ()

  • Feess, Eberhard

    ()

Abstract

This paper analyzes optimal bank capital requirements when regulation can be differentiated according to banks’ heterogeneous risk-assessment capabilities. The new Basel II Accord provides the opportunity to do by introducing distinct regulatory systems for banks authorized to apply internal ratings and externally rated banks.

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File URL: http://www.hec.fr/var/fre/storage/original/application/56f1f1c9fc044d2c50f7ac68090aee8d.pdf
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Bibliographic Info

Paper provided by HEC Paris in its series Les Cahiers de Recherche with number 879.

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Length: 41 pages
Date of creation: 01 Oct 2007
Date of revision:
Handle: RePEc:ebg:heccah:0879

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Postal: HEC Paris, 78351 Jouy-en-Josas cedex, France
Web page: http://www.hec.fr/
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Related research

Keywords: bank capital regulation; capital adequacy; bank competition; risk-taking; Basel Accord; internal ratings;

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References

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  1. Acharya, Viral V., 2009. "A Theory of Systemic Risk and Design of Prudential Bank Regulation," CEPR Discussion Papers 7164, C.E.P.R. Discussion Papers.
  2. Acharya, Viral V, 2002. "Is the International Convergence of Capital Adequacy Regulation Desirable?," CEPR Discussion Papers 3253, C.E.P.R. Discussion Papers.
  3. Dangl, Thomas & Lehar, Alfred, 2004. "Value-at-risk vs. building block regulation in banking," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 96-131, April.
  4. Hakenes, Hendrik & Schnabel, Isabel, 2006. "Bank Size and Risk-Taking under Basel II," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 88, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  5. Gropp, Reint & Richards, Anthony J., 2001. "Rating agency actions and the pricing of debt and equity of European banks: What can we infer about private sector monitoring of bank soundness?," Working Paper Series 0076, European Central Bank.
  6. Matutes, Carmen & Vives, Xavier, 1996. "Competition for Deposits, Fragility, and Insurance," Journal of Financial Intermediation, Elsevier, vol. 5(2), pages 184-216, April.
  7. Bhattacharya, S. & Boot, A.W.A. & Thakor, A.V., 1995. "The Economics of Bank Regulation," Papers 9516, Centro de Estudios Monetarios Y Financieros-.
  8. Bertrand Rime, 2005. "Will Basel II Lead to a Specialization of Unsophisticated Banks on High-Risk Borrowers?," International Finance, Wiley Blackwell, vol. 8(1), pages 29-55, 07.
  9. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  10. Altman, Edward I. & Saunders, Anthony, 2001. "An analysis and critique of the BIS proposal on capital adequacy and ratings," Journal of Banking & Finance, Elsevier, vol. 25(1), pages 25-46, January.
  11. Alan D. Morrison & Lucy White, 2005. "Crises and Capital Requirements in Banking," American Economic Review, American Economic Association, vol. 95(5), pages 1548-1572, December.
  12. Samu Peura & Esa Jokivuolle, 2004. "Simulation-based stress testing of banks’ regulatory capital adequacy," Finance 0405003, EconWPA.
  13. Decamps, Jean-Paul & Rochet, Jean-Charles & Roger, Benoit, 2004. "The three pillars of Basel II: optimizing the mix," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 132-155, April.
  14. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
  15. Morrison, Alan & White, Lucy, 2004. "Crises and Capital Requirements in Banking," CEPR Discussion Papers 4364, C.E.P.R. Discussion Papers.
  16. Besanko, David & Kanatas, George, 1996. "The Regulation of Bank Capital: Do Capital Standards Promote Bank Safety?," Journal of Financial Intermediation, Elsevier, vol. 5(2), pages 160-183, April.
  17. Repullo, Rafael & Suarez, Javier, 2003. "Loan Pricing Under Basel Capital Requirements," CEPR Discussion Papers 3917, C.E.P.R. Discussion Papers.
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