IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/13594.html
   My bibliography  Save this paper

When risk weights increase the risk: some concerns for capital regulation

Author

Listed:
  • Varsanyi, Zoltan

Abstract

In this chapter I argue that as a response to the introduction of capital requirements in the form of risk weights investors might potentially choose riskier portfolios than before the regulation – this is, presumably, not what the regulation intends to achieve. That is, while regulation most likely diverts investors from their optimum decision it does not guarantee that the new optimum has a lower risk. The effect of the regulation depends on several things, most importantly the correlation between individual investments, investor preferences and the relative size of risk weights.

Suggested Citation

  • Varsanyi, Zoltan, 2009. "When risk weights increase the risk: some concerns for capital regulation," MPRA Paper 13594, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:13594
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/13594/1/MPRA_paper_13594.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Con Keating & Hyun Song Shin & Charles Goodhart & Jon Danielsson, 2001. "An Academic Response to Basel II," FMG Special Papers sp130, Financial Markets Group.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    portfolio selection; regulation; Basel II; risk;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:pra:mprapa:13594. 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: (Joachim Winter) or (Rebekah McClure). General contact details of provider: http://edirc.repec.org/data/vfmunde.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.