The New Basel Accord: Implications of the Co-existence between the Standardized Approach and the Internal Ratings-based Approach

Bertrand Rime ()
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Bertrand Rime: Swiss National Bank, http://www.snb.ch

No 03.05, Working Papers from Swiss National Bank, Study Center Gerzensee

Abstract: We examine the prudential implications of the co-existence between the standardized approach and the internal ratings-based (IRB) approach, as defined in the new Basle Accord. We consider a model in which sophisticated banks, eligible for the IRB approach, and unsophisticated banks, eligible for the standardized approach, allocate their loan portfolio between high-risk and lowrisk borrowers. We find that the co-existence between the two regimes may induce sophisticated banks to decrease risk-taking, but encourage unsophisticated banks to increase risk-taking. The risk reallocation effects are stronger when competition is more intense.

Pages: 35 pages
Date: 2003-07
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-rmg
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Citations: View citations in EconPapers (4)

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