Dimensions of credit risk and their relationship to economic capital requirements
AbstractNow in prospect is a major revision of international bank capital regulations that would embody recent advances in credit risk measurement and management. Previous regulations have been simpler in structure, with a primary goal of getting capital requirements right on average, and thus have largely ignored the difference between average and marginal. This paper presents evidence that explicit treatment in new regulations of several important dimensions of credit risk is necessary to limit banks' incentives to engage in capital arbitrage activities. Such activities, if unchecked, may lead to an increase in bank failure rates over time.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2000-18.
Date of creation: 2000
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