Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/94106
Authors: 
Hakenes, Hendrik
Schnabel, Isabel
Year of Publication: 
2006
Series/Report no.: 
SFB/TR 15 Discussion Paper 88
Abstract: 
We analyze the relationship between bank size and risk-taking under the New Basel Capital Accord. Using a model with imperfect competition and moral hazard, we show that the introduction of an internal ratings based (IRB) approach improves upon flat capital requirements if the approach is applied uniformly across banks and if the costs of implementation are not too high. However, the banks' right to choose between the standardized and the IRB approaches under Basel II gives larger banks a competitive advantage and, due to fiercer competition, pushes smaller banks to take higher risks. This may even lead to higher aggregate risk-taking.
Subjects: 
Basel II
IRB approach
bank competition
capital requirements
SME financing
JEL: 
G21
G28
L11
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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