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Policy essay - risk-based bank capital: issues and solutions

Author

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  • Robert R. Bliss

Abstract

Market risk has become an integral consideration in bank business. Derivatives are increasingly used as a means of risk management, and bank involvement in derivatives trading represents a new, different, and very important line of business. Existing regulations for the determination of bank capital, based on the quality of assets held, are not appropriate for trading portfolio assets where exposure to market risk factors is of primary importance. ; This essay discusses three major proposals for dealing with market risk in determining banks' risk-based capital. The standard and internal model approaches are concerned with regulating the models used internally by banks for risk assessment and management. The third alternative, called the precommitment approach, emphasizes incentives and goals while leaving modeling issues entirely to banks. The author argues that, properly implemented, the precommitment approach is best suited to attaining regulatory goals.

Suggested Citation

  • Robert R. Bliss, 1995. "Policy essay - risk-based bank capital: issues and solutions," Economic Review, Federal Reserve Bank of Atlanta, vol. 80(Sep), pages 32-40.
    • Handle: RePEc:fip:fedaer:y:1995:i:sep:p:32-40:n:v.80no.5
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    Citations

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    Cited by:

    1. Andreas A. Jobst, 2002. "Collateralized Loan Obligations (CLOs) – A Primer," Working Paper Series: Finance and Accounting 96, Department of Finance, Goethe University Frankfurt am Main.
    2. Mohsin S. Khan, 2002. "New Issues in Bank Regulation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 41(4), pages 333-356.
    3. Jobst, Andreas A., 2002. "The Pricing puzzle: The default term structure of collateralised loan obligations," CFS Working Paper Series 2002/14, Center for Financial Studies (CFS).
    4. Jobst, Andreas A., 2002. "Loan securitisation: default term structure and asset pricing based on loss prioritisation," LSE Research Online Documents on Economics 24941, London School of Economics and Political Science, LSE Library.
    5. Chami, Ralph & Fullenkamp, Connel, 2002. "Trust and efficiency," Journal of Banking & Finance, Elsevier, vol. 26(9), pages 1785-1809, September.
    6. Jean-Marc Figuet, 2000. "Le prêteur en dernier ressort international," Revue d'Économie Financière, Programme National Persée, vol. 56(1), pages 57-75.

    More about this item

    Keywords

    Bank capital; Risk;

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