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http://hdl.handle.net/10419/25415
  
Title:The Basel II Accord: Internal ratings and bank defferentiation PDF Logo
Authors:Fees, Eberhard
Hege, Ulrich
Issue Date:2004
Series/Report no.:CFS Working Paper 2004/25
Abstract: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.
Subjects:Basel II Accord, risk-based capital, internal ratings based approach, bank capital, bank competition, risk-taking
JEL:K13
H41
Persistent Identifier of the first edition:urn:nbn:de:hebis:30-10769
Document Type:Working Paper
Appears in Collections:CFS Working Paper Series, Universität Frankfurt a. M.

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