EconPapers    
Economics at your fingertips  
 

The credibility of European banks’ risk-weighted capital: structural differences or national segmentations?

Brunella Bruno (), Giacomo Nocera and Andrea Resti

No 1509, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: Supranational institutions, academics and market analysts have increasingly questioned the reliability of bank risk-weighted assets (RWAs), a cornerstone of the system of minimum capital ratios designed by the Basel Committee on Banking Supervision. In fact, significant differences can be found in the banks’ average risk weights, both over time and across countries. Such differences can be explained by several factors, some of which may reflect the actual risk content of bank’s assets, while others may conceal distortions due to “RWA tweaking” and supervisory segmentations. We analyze a sample of 50 large European banks between 2008 and 2012 and document several meaningful findings. First, risk weights are affected by the banks’ size, business model and asset mix. Second, the adoption of internal ratings based (IRB) approaches is (as expected) a powerful driver of bank risk-weighted assets. Third, lower risk weights are positively linked to the banks’ capital cushion. Fourth, IRB adoption is more widespread in countries where supervisory capture is potentially stronger, due to a banking industry that is both larger (compared to GDP) and concentrated. Fifth, regulatory risk weights are not disconnected from market-based measures of bank risk.

Keywords: Banks; capital; risk-weighted assets; regulation; Basel accords (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2015
New Economics Papers: this item is included in nep-ban, nep-eec and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://repec.unibocconi.it/baffic/baf/papers/cbafwp1509.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:baf:cbafwp:cbafwp1509

Access Statistics for this paper

More papers in BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy Via Röntgen, 1 - 20136 Milano - Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Michela Pozzi ().

 
Page updated 2025-03-19
Handle: RePEc:baf:cbafwp:cbafwp1509