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Distance to compliance portfolios: An integrated shortfall measure for basel III

Christian Schmaltz, Thomas Heidorn and Ingo Torchiani

Journal of Banking & Finance, 2018, vol. 87, issue C, 87-101

Abstract: We propose measuring a bank’s distance to compliance with Basel III using a portfolio that makes the bank compliant. This “Distance to Compliance” portfolio describes an implementable strategy and incorporates the interactions of all Basel III ratios. We derive the portfolio in a microeconomic banking model in which the board decides on the regulatory target levels and bears the responsibility in case the bank fails to meet the regulatory requirements in a stress situation.

Keywords: Basel III; Integrated shortfall; Impact studies (search for similar items in EconPapers)
JEL-codes: G21 C61 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:jbfina:v:87:y:2018:i:c:p:87-101