Market crises and Basel capital requirements: Could Basel III have been different? Evidence from Portugal, Ireland, Greece and Spain (PIGS)

Adrián F. Rossignolo, Meryem Duygun Fethi and Mohamed Shaban

Journal of Banking & Finance, 2013, vol. 37, issue 5, 1323-1339

Abstract: Basel III represents a crucial step in strengthening the capital rules underlying banking operations, aimed at reducing the probability and severity of a systemic crisis. Alongside two supplementary capital buffers, the Basel Committee of Banking Supervision imposed severe pressure on the Value-at-Risk based Internal Models Approach in order to increase. This is to increase the capital base by adding the stressed Value-at-Risk component in an effort to reduce reliance on internal models while keeping the Standardized Approach avenue open. However, even though those measures might appear theoretically correct, evidence gathered for long and short exposures in Portugal, Italy, Greece and Spain highlights several defects in Basel III. We emphasize that leptokurtic models, primarily those derived from Extreme Value Theory, should be enforced in the regulations given their superior performance in market crises, and that Basel II could have shielded against 2008 mayhem provided that heavy-tailed techniques had been employed.

Keywords: Value-at-risk; Extreme value theory; PIGS; Basel III; Internal models approach; Standardized approach (search for similar items in EconPapers)
JEL-codes: G28 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426612002580
Full text for ScienceDirect subscribers only

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:eee:jbfina:v:37:y:2013:i:5:p:1323-1339

DOI: 10.1016/j.jbankfin.2012.08.021

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().