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Specialisation in mortgage risk under Basel II

Peter Eckley (), Matteo Benetton (), Georgia Latsi (), Nicola Garbarino and Liam Kirwin ()
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Matteo Benetton: LSE
Georgia Latsi: Independent

No 639, Bank of England working papers from Bank of England

Abstract: Since Basel II was introduced in 2008, two approaches to calculating bank capital requirements have co-existed: lenders’ internal models, and a less risk-sensitive standardised approach. Using a unique dataset covering 7 million UK mortgages for 2005–15, and novel identification, we provide empirical evidence that the differences between these approaches cause lenders to specialise. This leads to systemic concentration of high-risk mortgages in lenders with less sophisticated risk management. Our results have broad implications for the design of the international bank capital framework.

Keywords: Capital regulation; banking; mortgages; specialisation; risk-taking; Basel II (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn, nep-rmg and nep-ure
Date: 2017-01-13
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0639

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