IDEAS home Printed from https://ideas.repec.org/a/ses/arsjes/1995-iv-14.html
   My bibliography  Save this article

A Limit-Risk Capital Adequacy Rule: An Alternative Approach to Capital Adequacy Regulation for Banks with an Empirical Application to Switzerland

Author

Listed:
  • George Sheldon

Abstract

The paper presents an alternative to the capital adequacy requirements proposed by the Basle Committee on Banking Supervision. Akin to the value-at-risk method, the alternative approach envisages national supervisory authorities setting a maximum risk of insolvency that no bank would be allowed to exceed, and each bank complying by holding a capital-to-asset ratio commensurate with its overhead costs and with the expected value and volatility of its rate of return. The alternative approach offers a number of advantages, including a framework for assessing the costs and benefits that increasing capital standards entails. The paper discusses problems of implementation and applies the approach to data taken from the great majority of banks that operated in Switzerland in the period 1987-93. The results suggest, among other things, that current capital requirements in Switzerland tend to overcharge low-risk banks and to undercharge high-risk ones.

Suggested Citation

  • George Sheldon, 1995. "A Limit-Risk Capital Adequacy Rule: An Alternative Approach to Capital Adequacy Regulation for Banks with an Empirical Application to Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 131(IV), pages 773-805, December.
  • Handle: RePEc:ses:arsjes:1995-iv-14
    as

    Download full text from publisher

    File URL: http://www.sjes.ch/papers/1995-IV-14.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Paroush, Jacob, 1988. " The Domino Effect and the Supervision of the Banking System," Journal of Finance, American Finance Association, vol. 43(5), pages 1207-1218, December.
    2. Martin Hellwig, 1995. "Systemic Aspects of Risk Management in Banking and Finance," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 131(IV), pages 723-737, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Franz R. Hahn, "undated". "Macroprudential Financial Regulation and Monetary Policy," WIFO Working Papers 154, WIFO.
    2. Li-Hua Lai & Li-Chin Hung & Chau-Jung Kuo, 2016. "Do Well-Financial Holding Company Organized Banks in Taiwan Take More Risk?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(04), pages 1-30, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ses:arsjes:1995-iv-14. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Steiner). General contact details of provider: http://edirc.repec.org/data/sgvssea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.