Bank Size and Risk-Taking under Basel II

Hendrik Hakenes and Isabel Schnabel

No 2005_6, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

Abstract: This paper discusses the relationship between bank size and risk-taking under Pillar I of the New Basel Capital Accord. Using a model with imperfect competition and moral hazard, we find that small banks (and hence small borrowers) may profit from the introduction of an internal ratings based (IRB) approach if this approach is applied uniformly across banks. However, the banks’ right to choose between the standardized and the IRB approaches unambiguously hurts small banks, and pushes them towards higher risk-taking due to fiercer competition. This may even lead to higher aggregate risk in the economy.

Keywords: Basel II; IRB approach; bank competition; capital requirements; SME financing (search for similar items in EconPapers)
JEL-codes: G21 G28 L11 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2005-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Bank size and risk-taking under Basel II (2011)
Working Paper: Bank Size and Risk-Taking under Basel II (2006)
Working Paper: Bank size and risk-taking under Basel II (2005)
Working Paper: Bank Size and Risk-Taking under Basel II (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:mpg:wpaper:2005_06

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