The Basel Accord and The Value of Bank Differentiation

Ulrich Hege and Eberhard Feess ()

Post-Print from HAL

Abstract: The authors investigate optimal capital requirements in a model in which banks decide on their investment in credit scoring systems. The main result is that regulators should encourage sophisticated banks to keep their asset portfolios safe, while assets with high systematic risk should be concentrated in smaller banks. The proposed regulatory differentiation follows the Basel Accord's distinction between internal ratings-based approach and standard approach. Sophisticated banks should increase their equity capital relative to other banks, leading to further size differentiation. The moral hazard problem of banks misrepresenting their loan portfolio risk is analyzed, with the result that it induces stricter capital requirements.

Keywords: bank capital regulation; bank failure; risk-taking; Basel Accord; internal ratings (search for similar items in EconPapers)
Date: 2012-10
References: Add references at CitEc
Citations: View citations in EconPapers (18)

Published in Review of Finance, 2012, 16 (4), pp.1043-1092. ⟨10.1093/rof/rfr002⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: The Basel Accord and the Value of Bank Differentiation (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00738261

DOI: 10.1093/rof/rfr002

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().