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The New Basel Accord: Implications of the Co-existence between the Standardized Approach and the Internal Ratings-based Approach

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Author Info
Bertrand Rime () (Swiss National Bank)
Abstract

We examine the prudential implications of the co-existence between the standardized approach and the internal ratings-based (IRB) approach, as defined in the new Basle Accord. We consider a model in which sophisticated banks, eligible for the IRB approach, and unsophisticated banks, eligible for the standardized approach, allocate their loan portfolio between high-risk and lowrisk borrowers. We find that the co-existence between the two regimes may induce sophisticated banks to decrease risk-taking, but encourage unsophisticated banks to increase risk-taking. The risk reallocation effects are stronger when competition is more intense.

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Paper provided by Swiss National Bank, Study Center Gerzensee in its series Working Papers with number 03.05.

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Length: 35 pages
Date of creation: Jul 2003
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Handle: RePEc:szg:worpap:0305

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  4. Blum, Jurg, 1999. "Do capital adequacy requirements reduce risks in banking?," Journal of Banking & Finance, Elsevier, vol. 23(5), pages 755-771, May. [Downloadable!] (restricted)
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  7. Roland Kirstein, . "The New Basle Accord, Internal Ratings, and the Incentives of Banks," German Working Papers in Law and Economics 2001-1-1017, Berkeley Electronic Press. [Downloadable!]
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  10. Rafael Repullo, 2002. "Capital requirements, market power, and risk-taking in banking," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 150-163.
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  11. Furlong, Frederick T. & Keeley, Michael C., 1989. "Capital regulation and bank risk-taking: A note," Journal of Banking & Finance, Elsevier, vol. 13(6), pages 883-891, December. [Downloadable!] (restricted)
  12. Rochet, Jean-Charles, 1992. "Capital requirements and the behaviour of commercial banks," European Economic Review, Elsevier, vol. 36(5), pages 1137-1170, June. [Downloadable!] (restricted)
  13. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn. [Downloadable!] (restricted)
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