An empirical approach to Basel II

Christopher Whalen

Journal of Risk Management in Financial Institutions, 2008, vol. 1, issue 2, 133-145

Abstract: The author argues that not only did the quantitative models utilised by many banks miss an ‘extreme’ risk event in the subprime crisis, but more generally overreliance on quantitative methods using market data seems to have blinded market participants and regulators to the obvious risks inherent in a business model for financial institutions focused on originating and trading assets for which there is little or no specific information. In view of the failure of quantitative models, the author uses the example of public data benchmarks for the top-level factors of Basel II to suggest that it is possible to create risk-sensitive estimates of economic capital and the other factors defined in Basel II without the use of quantitative models employing market data.

Keywords: Basel II; credit risk; quantitative models; safety and soundness; banks; subprime (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:aza:rmfi00:y:2008:v:1:i:2:p:133-145

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