The effects of national discretions on banks

Isabel Argimon () and Jenifer Ruiz ()
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Jenifer Ruiz: European University Institute, Florence

No 1029, Working Papers from Banco de España

Abstract: The EU's transposition of Basel II into European law has been done through the Capital Requirements Directive (CRD). Although the Directive establishes, in general, uniform rules to set capital requirements across European countries, there are some areas where the Directive allows some heterogeneity. In particular, countries are asked to choose among different possibilities when transposing the Directive, which are called national discretions (ND). The main objective of our research is to use such observed heterogeneity to gather empirical evidence on the effects on European banks of more or less stringency and more or less risk sensitivity in capital requirements. Following the approach in Barth et al. (2004, 2006, 2008) we build index numbers for groups of national discretions and applying Altunbas et al. (2007) approach, we provide evidence on their effect on banks' risk, capital, efficiency and cost. We show that more stringency and more risk sensitivity in regulation not always result in a trade off between efficiency and solvency: the impact depends on the area of national discretion on which such characteristics apply.

Keywords: Prudential regulation; capital requirements; bank capital; risk; efficiency (search for similar items in EconPapers)
JEL-codes: E61 G21 G28 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2010-09
New Economics Papers: this item is included in nep-ban, nep-eec, nep-eur, nep-mac, nep-reg and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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