Basel II and financial stability: An investigation of sensitivity and cyclicality of capital requirements based on QIS 5
AbstractThis study aims to analyse the sensitivity of capital requirements to changes in risk parameters (PD, LGD and M) by creating a ‘model bank’ with a portfolio mirroring the average asset composition of internationally active large banks, as well as locally oriented smaller institutions participating in the QIS 5 exercise. Using historical data on corporate default rates, the dynamics of risk weights and capital requirements over a whole business cycle are also examined, with special emphasis on financial stability implications. The purpose of this paper is to contribute to a better understanding of the mechanism of Basel II and to explore the possible impacts of prudential regulation on cyclical swings in capital requirements.
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Bibliographic InfoPaper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Occasional Papers with number 2007/67.
Length: 43 pages
Date of creation: 2007
Date of revision:
Basel II; credit risk; capital requirement; regulation; cyclicality; financial stability.;
Find related papers by JEL classification:
- 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
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-12-01 (All new papers)
- NEP-CFN-2007-12-01 (Corporate Finance)
- NEP-FMK-2007-12-01 (Financial Markets)
- NEP-REG-2007-12-01 (Regulation)
- NEP-RMG-2007-12-01 (Risk Management)
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