The Basel II accord : internal ratings and bank differentiation

  • The Basel Committee plans to differentiate risk-adjusted capital requirements between banks regulated under the internal ratings based (IRB) approach and banks under the standard approach. We investigate the consequences for the lending capacity and the failure risk of banks in a model with endogenous interest rates. The optimal regulatory response depends on the banks' inclination to increase their portfolio risk. If IRB-banks are well-capitalized or gain little from taking risks, then they will increase their market share and hold safe portfolios. As risk-taking incentives become more important, the optimal portfolio size of banks adopting intern rating systems will be increasingly constrained, and ultimately they may lose market share relative to banks using the standard approach. The regulator has only limited options to avoid the excessive adoption of internal rating systems. JEL Klassifikation: K13, H41.

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Metadaten
Author:Eberhard Feess, Ulrich Hege
URN:urn:nbn:de:hebis:30-10769
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2004,25
Series (Serial Number):CFS working paper series (2004, 25)
Document Type:Working Paper
Language:English
Year of Completion:2004
Year of first Publication:2004
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:Basel II Accord; bank capital; bank competition; internal ratings based approach; risk-based capital; risk-taking
GND Keyword:Basler Eigenkapitalvereinbarung , 2001
Issue:December 2004
HeBIS-PPN:222087803
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht