Banks' internal rating models - time for a change? The "system of floors" as proposed by the Basel committee
Rainer Haselmann () and
No 43, SAFE White Paper Series from Leibniz Institute for Financial Research SAFE
We provide an assessment of the Basel Committee on Banking Supervision (BCBS) proposal to restrict the internal ratings-based approach on bank risk and to introduce risk-weighted asset floors. If well enforced, risk-sensitive capital regulation results in a more efficient credit allocation compared to the standard approach. Thus, the internal ratings-based approach should be maintained. Further, the use of internal ratings-based output floors potentially results in unintended negative side effects. Input floors are likely a valuable tool to achieve risk-weighted assets comparability. Finally, the proposed measures have a potential detrimental impact for European banks as compared to others.
Keywords: internal rating models; floors; banking regulation; BCBS (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewh:43
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