Rating systems, procyclicalilty and Basel II: an evaluation in a general equilibrium framework

Chiara Pederzoli, Costanza Torricelli and Dimitrios Tsomocos

No 2008fe27, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: The introduction of Basel II has raised concerns about the potential impact of risk-sensitive capital requirements on the business cycle. Several approaches have been proposed to assess the procyclicality issue. In this paper, we adopt a general equilibrium model and conduct comprehensive analysis of different proposals. We set out a model that allows to evaluate different rating systems in relation to the procyclicality issue. Our model extends previous models by analysing the effects of different rating systems on banks' portfolios (as in Catarineu-Rabell et al. 2005) and the contagion effects relevant to financial stability (as in Goodhart et al. 2005). The paper presents comparative statics results comparing a cycle-dependent and a neutral rating system from the point of view of banks profit maximization. Our results suggest that banks' preferences about point in time or through the cycle rating systems depend on the banks' characteristics and on the business cycle conditions in terms of expectations and realizations.

Date: 2008-06-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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

Related works:
Journal Article: Rating systems, procyclicality and Basel II: an evaluation in a general equilibrium framework (2010)
Working Paper: Rating systems, procyclicality and Basel II: an evaluation in a general equilibrium framework (2008)
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:oxf:wpaper:2008fe27

Access Statistics for this paper

More papers in Economics Series Working Papers from University of Oxford, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Anne Pouliquen ( this e-mail address is bad, please contact ).