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Banks' internal rating models - time for a change? The "system of floors" as proposed by the Basel committee

Rainer Haselmann () and Mark Wahrenburg

No 43, SAFE White Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: 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)
Date: 2016
New Economics Papers: this item is included in nep-acc, nep-ban, nep-cba and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewh:43

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