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An integrated shortfall measure for Basel III

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  • Torchiani, Ingo
  • Heidorn, Thomas
  • Schmaltz, Christian

Abstract

We propose a new method for measuring how far away banks are from complying with a multi-ratio regulatory framework. We suggest measuring the efforts a bank has to make to reach compliance as an additional portfolio which is derived from a microeconomic banking model. This compliance portfolio provides an integrated measure of the shortfalls resulting from a new regulatory framework. Our method complements the descriptive reporting of individual shortfalls per ratio when monitoring banks' progress toward compliance with a new regulatory framework. We apply our concept to a sample of 46 German banks in order to quantify the effects of the interdependencies of the Basel III capital and liquidity requirements. Comparing our portfolio approach to the shortfalls reported in the Basel III monitoring, we find that the reported shortfalls tend to underestimate the required capital and to overestimate of the required stable funding. However, compared to the overall level of the reported shortfalls, the effects resulting from the interdepen- dencies of the Basel III ratios are found to be rather small.

Suggested Citation

  • Torchiani, Ingo & Heidorn, Thomas & Schmaltz, Christian, 2017. "An integrated shortfall measure for Basel III," Discussion Papers 26/2017, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdps:262017
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    1. Paolo Angelini & Laurent Clerc & Vasco Cúrdia & Leonardo Gambacorta & Andrea Gerali & Alberto Locarno & Roberto Motto & Werner Roeger & Skander Van den Heuvel & Jan Vlček, 2015. "Basel III: Long-term Impact on Economic Performance and Fluctuations," Manchester School, University of Manchester, vol. 83(2), pages 217-251, March.
    2. Allen, Bill & Chan, Ka Kei & Milne, Alistair & Thomas, Steve, 2012. "Basel III: Is the cure worse than the disease?," International Review of Financial Analysis, Elsevier, vol. 25(C), pages 159-166.
    3. Emanuel Kopp & Christian Ragacs & Stefan W. Schmitz, 2010. "The Economic Impact of Measures Aimed at Strengthening Bank Resilience – Estimates for Austria," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 20, pages 86-114.
    4. Michael R King, 2010. "Mapping capital and liquidity requirements to bank lending spreads," BIS Working Papers 324, Bank for International Settlements.
    5. Yan, Meilan & Hall, Maximilian J.B. & Turner, Paul, 2012. "A cost–benefit analysis of Basel III: Some evidence from the UK," International Review of Financial Analysis, Elsevier, vol. 25(C), pages 73-82.
    6. Schmaltz, Christian & Pokutta, Sebastian & Heidorn, Thomas & Andrae, Silvio, 2014. "How to make regulators and shareholders happy under Basel III," Journal of Banking & Finance, Elsevier, vol. 46(C), pages 311-325.
    7. Patrick Slovik & Boris Cournède, 2011. "Macroeconomic Impact of Basel III," OECD Economics Department Working Papers 844, OECD Publishing.
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    More about this item

    Keywords

    Basel III; linear programming; impact studies; integrated shortfall;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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