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Credit risk regulation in the Czech Republic after Basel II

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  • Vodová, Pavla

Abstract

In this year, new capital adequacy regulation, known as Basel II, came into force. Based on these rules, two directives of the European Parliament and of the Council have been revised and the new decree of Czech National Bank has come into force. This new decree brings some new aspects in credit risk regulation. The aim of this paper is to characterize the main changes in credit risk regulation due to Basel II and to outline the effects on the availability of loans for nonfinancial companies. According to the new rules, the bank’s capital charge is calculated to capture credit, market and operational risk. Banks are able to choose between standardized measurement concepts and more refined internal procedures and models which should lead to reduction of capital charges. Two new methods of calculating loan loss provisions have been implemented. Limits for credit exposure of banks remained unchanged. Small and medium-sized companies should benefit both from Standardised Approach and Internal Ratings Based Approach. Corporations with good financial health should benefit from IRB Approach and corporations with rating assessment from external rating agencies will advantage of Standardised Approach. Changes in other aspects of credit risk regulation should not affect the lending activity of banks.

Suggested Citation

  • Vodová, Pavla, 2007. "Credit risk regulation in the Czech Republic after Basel II," MPRA Paper 11901, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:11901
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    References listed on IDEAS

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    1. Allen Berger, 2006. "Potential Competitive Effects of Basel II on Banks in SME Credit Markets in the United States," Journal of Financial Services Research, Springer;Western Finance Association, vol. 29(1), pages 5-36, February.
    2. Decamps, Jean-Paul & Rochet, Jean-Charles & Roger, Benoit, 2004. "The three pillars of Basel II: optimizing the mix," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 132-155, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    credit risk; Basel II; capital requirements; availability of loans; rating;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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