Noncredit risks subsidization in the international capital standards

Sunil Mohanty

Applied Financial Economics, 2001, vol. 11, issue 1, 9-16

Abstract: One of the major weaknesses of current risk-based capital standards is that they account primarily for credit risk, interest rate risk and market risks and, thus, fail to explicitly incorporate other types of noncredit risks. Utilizing a risk-of-failure analysis, this study provides evidence that several sources of noncredit risks including asset concentrations and liquidity risk significantly increase bank insolvency. These results suggest that the regulatory agencies must continue to strengthen the capital positions of banks by accounting for several sources of noncredit risks in addition to credit, interest rate, and market risks.

Date: 2001
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DOI: 10.1080/09603100150210219

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