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Zapodeanu Daniela,Gall Raluca Dorina
Annals of the University of Oradea : Economic Science , 2009,
Abstract: Even though the actual Basel II Settlement has many advantages like: more transparent and detailed bank information, the rating systems, the internal models of evaluation for risks, the three pillars which represent a whole, an equitable bank competition,
Asset Allocation under the Basel Accord Risk Measures  [PDF]
Zaiwen Wen,Xianhua Peng,Xin Liu,Xiaoling Sun,Xiaodi Bai
Quantitative Finance , 2013,
Abstract: Financial institutions are currently required to meet more stringent capital requirements than they were before the recent financial crisis; in particular, the capital requirement for a large bank's trading book under the Basel 2.5 Accord more than doubles that under the Basel II Accord. The significant increase in capital requirements renders it necessary for banks to take into account the constraint of capital requirement when they make asset allocation decisions. In this paper, we propose a new asset allocation model that incorporates the regulatory capital requirements under both the Basel 2.5 Accord, which is currently in effect, and the Basel III Accord, which was recently proposed and is currently under discussion. We propose an unified algorithm based on the alternating direction augmented Lagrangian method to solve the model; we also establish the first-order optimality of the limit points of the sequence generated by the algorithm under some mild conditions. The algorithm is simple and easy to implement; each step of the algorithm consists of solving convex quadratic programming or one-dimensional subproblems. Numerical experiments on simulated and real market data show that the algorithm compares favorably with other existing methods, especially in cases in which the model is non-convex.
The Operational Risk in the Outlook of the Basel II Accord Implementation
Andrei Tinca
Theoretical and Applied Economics , 2007,
Abstract: The financial scandals n the last two decades have determined the Basel Committee to improve the risk controls for banks n general, and for operational risk in particular. Operational risk covers all non-market or credit risk, therefore including management risk, IT and fraud risk. By the Basel II Accord, the Committee proposes three risk measurement methods, which induce increasing costs, but also greater reductions n a bank’s capital reserve, and thus n its operating costs.
Annals of the University of Petrosani : Economics , 2009,
Abstract: The New Basel Accord aims to ensure that international banks’regulatory capital reflects more closely the credit quality of their loan portfolios. This meansthat capital charges will be higher for lending to low credit quality borrowers. Some haveargued that this increased risk sensitivity will lead to a curtailment in the supply of capital toemerging market economies (EMEs) .There are several reasons to think that the impact of thenew Accord is unlikely to be as dramatic as some commentators have suggested.
Towards a New Basel Accord with More Rigorous Settlements
Petru PRUNEA,Daniela COSMA
Theoretical and Applied Economics , 2010,
Abstract: The recent financial crisis made the banking sector more vulnerable to shocks. The system was characterised by weaknesses: too much leverage in the banking; not enough high quality capital to absorb losses and excessive credit growth based on underwriting standards and under pricing of liquidity. This article is about a new accord Basel III and the view of this framework. Basel III will be finalized before November 2010, and will be implemented by the end of 2012. Basel III is going to be implemented in the United States. All G–20 countries should adopt progressively this capital framework. The Basel Committee on Banking Supervision and national authorities should develop and agree a global framework for promoting a stronger liquidity in financial institutions. The reform program is to raise the resilience of the banking sector through promoting more sustainable growth, both in the near term and over the long therm. The initiatives of Basel Committee will develop a set of reforms based on four steps: public consultation, impact assessment, overall calibration and macroeconomic impact assessment over the transition period.
The Basel II Accord on Measuring and Managing a Bank's Risks
Ion Stancu,Andrei Tinca
Theoretical and Applied Economics , 2007,
Abstract: The abundance of risk metrics stems from the effort to measure the difference between the expected and actual returns, under a hypothesis of normality. Under the assumption of risk aversion, investors are likely to quantify risk using metrics which measure returns lower than the expected average. These include the semi-variance of returns smaller than the average, the risk of loss – a return under a chosen level, usually 0%, and value-at-risk, for the greatest losses, with a probability of less than 1-5% in a given period of time. The Basel II accord improves on the way risks are measured, by allowing banks greater flexibility. There is an increase in the complexity of measuring credit risks, the market risks measurement methods remain the same, and the measurement of operational risk is introduced for the first time. The most advanced (and widely-used) risk metrics are based on VaR. However, it must be noted that VaR calculations are statistical, and therefore unlikely to forecast extraordinary events. So the quality of a VaR calculation must be checked using back-testing, and if the VaR value fails in a percentage of 1-5% of the cases, then the premises of the model must be changed.
Bank Valuation and Its Connections with the Subprime Mortgage Crisis and Basel II Capital Accord  [PDF]
C. H. Fouche,J. Mukuddem-Petersen,M. A. Petersen,M. C. Senosi
Discrete Dynamics in Nature and Society , 2008, DOI: 10.1155/2008/740845
Abstract: The ongoing subprime mortgage crisis (SMC) and implementation of Basel II Capital Accord regulation have resulted in issues related to bank valuation and profitability becoming more topical. Profit is a major indicator of financial crises for households, companies, and financial institutions. An SMC-related example of this is the U.S. bank, Wachovia Corp., which reported major losses in the first quarter of 2007 and eventually was bought by Citigroup in September 2008. A first objective of this paper is to value a bank subject to Basel II based on premiums for market, credit, and operational risk. In this case, we investigate the discrete-time dynamics of banking assets, capital, and profit when loan losses and macroeconomic conditions are explicitly considered. These models enable us to formulate an optimal bank valuation problem subject to cash flow, loan demand, financing, and balance sheet constraints. The main achievement of this paper is bank value maximization via optimal choices of loan rate and supply which leads to maximal deposits, provisions for deposit withdrawals, and bank profitability. The aforementioned loan rates and capital provide connections with the SMC. Finally, OECD data confirms that loan loss provisioning and profitability are strongly correlated with the business cycle.
The Comparison and Research on the Risk Control over the Global SMEs Loans  [cached]
Cross-Cultural Communication , 2006, DOI: 10.3968/562
Abstract: It is an ubiquitous question that it is difficult to get the loans for SMEs not only in the domestic banking sector but also in the world banking sector. One of the important reasons is the difficulty to manage the credit risk. The article analyses and compares the credit risk management of Chinese and foreign banks for small and medium-sized enterprises (SMEs) and gives some suggestions about credit risk management for Chinese commercial banks. Key words: foreign banks, small and medium-sized enterprises, risk management Résumé C’est un problème universel pour les prêts bancaires des PMEs dans les banques domestiques et internationales. Une des raisons les plus importantes est la difficultés à manager les risques du crédit. Cette thèse fait une analyse et une comparaison sur les risques du crédit par les banques domestiques et internationales aux PMEs, en fournissant des propositions des moyens très avancés des deux derniers pour construire dès possible un système de management des risques du crédit afin de réduire les difficultés des prêts des PMEs. Mots-clés : banques étrangères, PMEs, management des risques 摘 要 無論是在國內銀行業還是在世界銀行業,中小企業貸款難都是一個普遍存在的問題。而導致中小企業貸款難的一個重要原因就是銀行對其風險難以控制。本文通過對中、外銀行對中小企業信貸風險控制的比較,提出了借鑒國外銀行的先進做法,儘快建立合適的風險方法系統的對策建議,以緩解中小企業貸款難的問題。 關鍵詞:外資銀行;中小企業;風險控制
Determinants of SME credit worthiness under Basel rules: the value of credit history information  [cached]
Francesco Dainelli,Francesco Giunta,Fabrizio Cipollini
PSL Quarterly Review , 2013,
Abstract: The Basel III Accord has reportedly had an impact on SME financing. In this paper, we aim to highlight the determinants of SME credit worthiness. We use credit history in addition to financial ratios and “hybrid” indicators that have been built by mixing credit history with financial statement data. We develop a failure prediction logit model on 187 Italian SMEs. The use of short-term credit lines is the most important variable. Contrary to common understanding, capitalization levels do not affect ratings. Lastly, credit worthiness is sensitive to sale profitability.
From Basel I to Basel II
Riaz Ahmed,Manzoor A. Khalidi
Market Forces , 2007,
Abstract: This paper examines the journey from Basel I to Basel II. It examines the historical developments and the circumstances that led to the formulation of the famous Basel-I Accord in 1988, and its further refinement over the next two decades culminating in the finalization of a comprehensive document viz., the Basel-II Accord. The objective of the paper is to provide an insight into the long drawn and painstaking consultative process conducted under the aegis of the Basel Committee on Banking Supervision to address some of the long-standing weaknesses inherent in the original Basel Capital Adequacy Accord. The paper examines the process of development of the Basel Accord from a simple and crude credit risk measurement based capital adequacy accord into a comprehensive risk control framework grounded on three pillars: one, the Capital Adequacy Pillar which aims to improve the link between Bank Capital and the risks that could lead to Bank Insolvency; two, the Supervisory Pillar which aims to improve the Supervision Capacity of the regulators / supervisors to control the risk of bank failure; and three, the Transparency Pillar which is aimed at enhancing the capacity of the market’s Self Regulatory Mechanism. The paper acknowledges that by responding positively to some of the criticisms leveled at it during the various rounds of consultations the Committee has accommodated different points of views in the revised framework which has made it a more comprehensive and a more widely acceptable document for the bank supervisors around the world. The paper is expected to help facilitate a better understanding of the process of regulatory development.
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