Basel II's New Standardized Approach: Possible Effects of Implementation

Katherine Wyatt
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Katherine Wyatt: New York State Banking Department

Finance from EconWPA

Abstract: Basel II’s New Standardized Approach: Possible Effects of Implementation Katherine Wyatt New York State Banking Department Abstract The New York State Banking Department surveyed 33 institutions in 2001 and 2002 for a study of the possible effects of the Standardized Approach of the proposed New Capital Accord. Previously, the BIS Quantitative Impact Studies have focused on internationally active banks; this study provides information on the possible impact of the New Accord on domestic banks with asset size between $1 billion and $40 billion. These institutions are often grouped with community banks. The Department found that implementation of the most recent version of the Standardized Approach could lead to an average decrease of 7% in required capital for credit risk, but adding the proposed operational risk charge could bring the total capital charge on average to an increase of 12%. In addition, the estimated impact of the New Standardized Approach varies widely across institutions in the study: the change in minimum capital required for credit risk ranges from a decrease of 23% to an increase of 6%. The Basic Indicator charge for operational risk ranges from 5% of minimum regulatory capital for one savings bank to 83% of minimum required capital for a specialty bank. In this paper, we present a breakdown of the effects of the various elements of the proposed Standardized Approach, and consider a modified approach. We also analyze Call Report data for the survey banks to determine their “complexity profile” and review possible changes to their capital ratios.

Keywords: New Basel Capital Accord; banking regulation; capital requirements (search for similar items in EconPapers)
JEL-codes: G21 G28 G31 F33 (search for similar items in EconPapers)
Date: 2003-04-24
Note: Type of Document - PDF; prepared on IBM PC; pages: 20 ; figures: included
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0304010

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