A forward-looking model for time-varying capital requirements and the New Basel Capital Accord
This paper proposes a forward-looking model for time-varying capital requirements which finds application within the New Basel Capital Accord (NBCA) framework. The model aims at reconciling two somewhat contrasting objectives of the NBCA proposal: introducing risk-sensitive capital requirements and avoiding at the same time procyclical effects. The model rests on the relationship existing between default rates and the business cycle phases and proposes a modelisation of the default probabilities which is based on a business cycle forecast over the credit horizon. The model is applied to US data over the forecasting period 1971-2002: despite a failure in predicting the early nineties recession, the objective of raising the capital requirements in anticipation of a recessions is in general satisfied. The results obtained are interesting as they suggest that there is room for dampening procyclicality of capital requirements even within a risk-sensitive framework.
|Date of creation:||Feb 2004|
|Publication status:||Published in Journal of Banking and Finance, Vl. 29, 12, 2005|
|Contact details of provider:|| Web page: http://www.economia.unimore.it/|
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:mod:depeco:0453. 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: (Sara Colombini)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.