Risk Regulation in Brazil: A General Equilibrium Model

Aloisio Araujo and José Valentim M. Vicente

Brazilian Review of Econometrics, 2006, vol. 26, issue 1

Abstract: In the last few years, regulating agencies of many countries, following recommendations of the Basel Committee on Banking Supervision, have compelled financial institutions to maintain minimum capital requirements to cover market and credit risks. The capital charge to cover market risk is a function of a metric known as Value-at-Risk (VaR). This paper investigates the consequences of such practices on prices, volatilities and bankruptcy probability by considering two features of the Brazilian framework: variable risk constraint multiplier and heterogeneous beliefs between financial institutions and regulating agencies.

Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:sbe:breart:v:26:y:2006:i:1:a:2496

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