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Distance to compliance portfolios: An integrated shortfall measure for basel III

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  • Schmaltz, Christian
  • Heidorn, Thomas
  • Torchiani, Ingo

Abstract

We propose measuring a bank’s distance to compliance with Basel III using a portfolio that makes the bank compliant. This “Distance to Compliance” portfolio describes an implementable strategy and incorporates the interactions of all Basel III ratios. We derive the portfolio in a microeconomic banking model in which the board decides on the regulatory target levels and bears the responsibility in case the bank fails to meet the regulatory requirements in a stress situation.

Suggested Citation

  • Schmaltz, Christian & Heidorn, Thomas & Torchiani, Ingo, 2018. "Distance to compliance portfolios: An integrated shortfall measure for basel III," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 87-101.
  • Handle: RePEc:eee:jbfina:v:87:y:2018:i:c:p:87-101
    DOI: 10.1016/j.jbankfin.2017.09.002
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    More about this item

    Keywords

    Basel III; Integrated shortfall; Impact studies;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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