Bank safety under Basel II capital requirements
AbstractWe consider the impact of mandatory information disclosure on bank safety in a spatial model of banking competition in which a bank’s probability of success depends on the quality of its risk measurement and management systems. Under Basel II capital requirements, this quality is either fully or partially disclosed to market participants by the Pillar 3 disclosures. We show that, under stringent Pillar 3 disclosure requirements, banks’ equilibrium probability of success and total welfare may be higher under a simple Basel II standardized approach than under the more sophisticated internal ratings-based (IRB) approach.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 29/2009.
Length: 33 pages
Date of creation: 03 Nov 2009
Date of revision:
Basel II; capital requirements; information disclosure; market discipline; moral hazard;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
- 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
This paper has been announced in the following NEP Reports:
- NEP-ACC-2009-12-11 (Accounting & Auditing)
- NEP-ALL-2009-12-11 (All new papers)
- NEP-BAN-2009-12-11 (Banking)
- NEP-BEC-2009-12-11 (Business Economics)
- NEP-CTA-2009-12-11 (Contract Theory & Applications)
- NEP-REG-2009-12-11 (Regulation)
- NEP-RMG-2009-12-11 (Risk Management)
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