The treatment of Credit Risk in the Basel Accord and Financial Stability

Marie-Florence Lamy
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Marie-Florence Lamy: Pôle Finance Responsable - Rouen Business School - Rouen Business School

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Abstract: This paper discusses the Treatment of Credit Risk in the new Basel Accord that aims at improving financial stability in the world. It addresses the issue of the procyclicity effect of the new framework and the consequences on corporate financing. It then specially focuses on the treatment of maturity in the credit risk measurement and shows that it has a perverse effect leading banks to lend short for industrial assets and takeovers, which might be a factor of unstability. The choice of the Value-at-Risk as a measure of credit risk and linked liquidity aspects are discussed to conclude that the new Basel Accord should encourage A-rated banks to act as liquidity providers in economic slowdown phases.

Date: 2006
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Published in International Journal of Business, 2006, vol. 11 (n° 2), pp. 159-170

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00566534

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