Bank regulation and stability: An examination of the Basel market risk framework
AbstractIn attempting to promote bank stability, the Basel Committee on Banking Supervision (2006) provides a framework that seeks to control the amount of tail risk that large banks take in their trading books. However, banks around the world suffered sizeable trading losses during the recent crisis. Due to the size and prevalence of losses, a formal examination of whether the Basel framework allows banks to take substantive tail risk in their trading books without a capital requirement penalty is of particular interest. In this paper, we provide such an examination and show that the Basel framework indeed allows banks to do so. Hence, our paper supports the view that the Basel framework leaves room for considerable improvements regarding the treatment of tail risk. --
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Bibliographic InfoPaper provided by Deutsche Bundesbank, Research Centre in its series Discussion Papers with number 09/2012.
Date of creation: 2012
Date of revision:
Bank regulation; bank stability; Basel framework; crisis; tail risk;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- 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
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-22 (All new papers)
- NEP-BAN-2012-05-22 (Banking)
- NEP-CBA-2012-05-22 (Central Banking)
- NEP-RMG-2012-05-22 (Risk Management)
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