Bank size and risk-taking under Basel II

Hendrik Hakenes and Isabel Schnabel

Journal of Banking & Finance, 2011, vol. 35, issue 6, 1436-1449

Abstract: We analyze the relationship between bank size and risk-taking under the Basel II 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.

Keywords: Basel; II; IRB; approach; Standardized; approach; Bank; competition; Capital; requirements (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (72)

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Related works:
Working Paper: Bank Size and Risk-Taking under Basel II (2006)
Working Paper: Bank size and risk-taking under Basel II (2005)
Working Paper: Bank Size and Risk-Taking under Basel II (2005)
Working Paper: Bank Size and Risk-Taking under Basel II (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:6:p:1436-1449

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