Basel II and financial stability: An investigation of sensitivity and cyclicality of capital requirements based on QIS 5

Balázs Zsámboki ()
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Balázs Zsámboki: Magyar Nemzeti Bank

No 2007/67, MNB Occasional Papers from Magyar Nemzeti Bank (Central Bank of Hungary)

Abstract: This study aims to analyse the sensitivity of capital requirements to changes in risk parameters (PD, LGD and M) by creating a ‘model bank’ with a portfolio mirroring the average asset composition of internationally active large banks, as well as locally oriented smaller institutions participating in the QIS 5 exercise. Using historical data on corporate default rates, the dynamics of risk weights and capital requirements over a whole business cycle are also examined, with special emphasis on financial stability implications. The purpose of this paper is to contribute to a better understanding of the mechanism of Basel II and to explore the possible impacts of prudential regulation on cyclical swings in capital requirements.

Keywords: Basel II; credit risk; capital requirement; regulation; cyclicality; financial stability. (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2007
New Economics Papers: this item is included in nep-cfn, nep-fmk, nep-reg and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:mnb:opaper:2007/67

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