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Bank Size and Risk-Taking under Basel II Author info | Abstract | Publisher info | Download info | Related research | Statistics Hendrik Hakenes (MPI for Research on Collective Goods, Kurt-Schumacher-Str. 10, 53113 Bonn, Germany. hakenes@coll.mpg.de)
Isabel Schnabel (MPI for Research on Collective Goods, Kurt-Schumacher-Str. 10, 53113 Bonn, Germany. schnabel@coll.mpg.de)
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We analyze the relationship between bank size and risk-taking under the New Basel Capital Accord. Using a model with imperfect competition and moral hazard, we show that the introduction of an internal ratings based (IRB) approach improves upon flat capital requirements if the approach is applied uniformly across banks and if the costs of implementation are not too high. However, the banks’ right to choose between the standardized and the IRB approaches under Basel II gives larger banks a competitive advantage and, due to fiercer competition, pushes smaller banks to take higher risks. This may even lead to higher aggregate risk-taking.
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Paper provided by SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Papers with number
88.
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Date of creation: Feb 2006Date of revision:
Handle: RePEc:trf:wpaper:88Contact details of provider: Postal: D-68131 Mannheim Fax: +49 621 181-2785 Email: Web page: http://www.sfbtr15.de/ More information through EDIRC
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Keywords: Basel II ; IRB approach ; bank competition ; capital requirements ; SME financing ; Other versions of this item:
Find related papers by JEL classification: G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Hendrik Hakenes & Isabel Schnabel, 2004.
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[Downloadable!]
Other versions:
Hakenes, Hendrik & Schnabel, Isabel, 2004.
"Banks without Parachutes -- Competitive Effects of Government Bail-out Policies ,"
Sonderforschungsbereich 504 Publications
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Economic Perspectives ,
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Thomas F. Hellmann & Kevin C. Murdock & Joseph E. Stiglitz, 2000.
"Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough? ,"
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"Capital Requirements, Market Power and Risk-Taking in Banking ,"
CEPR Discussion Papers
3721, C.E.P.R. Discussion Papers.
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"Capital requirements, market power, and risk-taking in banking ,"
Proceedings ,
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Inês Drumond, 2008.
"Bank Capital Requirements, Business Cycle Fluctuations and the Basel Accords: A Synthesis ,"
FEP Working Papers
277, Universidade do Porto, Faculdade de Economia do Porto.
[Downloadable!]
Hendrik Hakenes & Isabel Schnabel, 2006.
"The Threat of Capital Drain: A Rationale for Public Banks? ,"
Working Paper Series of the Max Planck Institute for Research on Collective Goods
2006_11, Max Planck Institute for Research on Collective Goods.
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Other versions: Hege, Ulrich & Feess, Eberhard, 2007.
"Basel II and the Value of Bank Differentiation ,"
Les Cahiers de Recherche
879, HEC Paris.
[Downloadable!]
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