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The potential impact of explicit Basel II operational risk capital charges on the competitive environment of processing banks in the United States

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Author Info

  • Patrick de Fontnouvelle
  • Victoria Garrity
  • Scott Chu
  • Eric Rosengren

Abstract

Basel II replaces Basel I’s implicit capital charge on operational risk with an explicit charge. Certain U.S. banks concentrated in processing-related business lines – which have significant operational risk – could thus face an increase in overall minimum regulatory capital requirements. Some have argued that, as a result, these so-called “processing banks” would be disadvantaged vis-à-vis competitors not subject to regulatory capital requirements for operational risk. This paper evaluates these concerns.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Basel II White Paper with number 4.

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Date of creation: 2005
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Handle: RePEc:fip:fedgwp:4

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Keywords: Bank capital ; Risk management ; Basel capital accord;

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References

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  1. W. Scott Frame & Lawrence J. White, 2004. "Emerging competition and risk-taking incentives at Fannie Mae and Freddie Mac," Proceedings 922, Federal Reserve Bank of Chicago.
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Cited by:
  1. W. Scott Frame & Diana Hancock & Wayne Passmore, 2012. "Federal Home Loan Bank Advances and Commercial Bank Portfolio Composition," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(4), pages 661-684, 06.
  2. Allen N. Berger, 2004. "Potential competitive effects of Basel II on banks in SME credit markets in the United States," Finance and Economics Discussion Series 2004-12, Board of Governors of the Federal Reserve System (U.S.).
  3. Yener Altunbas & Leonardo Gambacorta & David Marques, 2008. "Securitization and the bank lending channel," Proceedings 1101, Federal Reserve Bank of Chicago.
  4. Mark J. Flannery, 2007. "Supervising bank safety and soundness: some open issues," Economic Review, Federal Reserve Bank of Atlanta, issue Q1-2, pages 83 - 100.
  5. Robert Eisenbeis & W. Frame & Larry Wall, 2007. "An Analysis of the Systemic Risks Posed by Fannie Mae and Freddie Mac and An Evaluation of the Policy Options for Reducing Those Risks," Journal of Financial Services Research, Springer, vol. 31(2), pages 75-99, June.
  6. William Poole, 2007. "The GSEs: where do we stand?," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-152.

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