Optimal Bank Planning Under Basel III Regulations
We provide a modeling framework for banks’ business planning under Basel III. For this purpose, we write banks’ planning as a formal optimization problem where Basel III minimum requirements/ratios enter as constraints. The linear program provides dual variables that are interpreted as compliance cost for each Basel III ratio. We analyze the effects of Basel III on banks’ product mix for a simplified, deterministic two-product case. In what follows, we generalize the model by incorporating parameter uncertainty, adjustment cost, multiple time steps, and products.
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Volume (Year): 34 (2012)
Issue (Month): ()
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