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. If such dimensions are compressed or ignored, capital arbitrage activities by banks are likely to continue, leading to an increase in bank failure rates over time.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7629.
Date of creation: Mar 2000
Date of revision:
Publication status: published as Mark Carey. "Dimensions of Credit Risk and Their Relationship to Economic Capital Requirements," in Frederic S. Mishkin, editor, "Prudential Supervision: What Works and What Doesn't" University of Chicago Press (2001)
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-05-16 (All new papers)
- NEP-CFN-2000-05-16 (Corporate Finance)
- NEP-IAS-2000-05-16 (Insurance Economics)
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