The Experts below are selected from a list of 21924 Experts worldwide ranked by ideXlab platform
Rafael Repullo - One of the best experts on this subject based on the ideXlab platform.
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cyclical adjustment of capital requirements a simple framework
Journal of Financial Intermediation, 2013Co-Authors: Rafael RepulloAbstract:We present a model of an economy with heterogeneous Banks that may be funded with uninsured deposits and equity capital. Capital serves to ameliorate a moral hazard problem in the choice of risk. There is a fixed aggregate supply of Bank capital, so the cost of capital is endogenous. A regulator sets risk-sensitive capital requirements in order to maximize a social welfare function that incorporates a social cost of Bank Failure. We consider the effect of a negative shock to the supply of Bank capital and show that optimal capital requirements should be lowered. Failure to do so would keep Banks safer but produce a large reduction in aggregate investment. The result provides a rationale for the cyclical adjustment of risk-sensitive capital requirements.
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cyclical adjustment of capital requirements a simple framework
Social Science Research Network, 2012Co-Authors: Rafael RepulloAbstract:We present a simple model of an economy with heterogeneous Banks that may be funded with uninsured deposits and equity capital. Capital serves to ameliorate a moral hazard problem in the choice of risk. There is a fixed aggregate supply of Bank capital, so the cost of capital is endogenous. A regulator sets risk-sensitive capital requirements in order to maximize a social welfare function that incorporates a social cost of Bank Failure. We consider the effect of a negative shock to the supply of Bank capital and show that optimal capital requirements should be lowered. Failure to do so would keep Banks safer but produce a large reduction in aggregate investment. The result provides a rationale for the cyclical adjustment of risk-sensitive capital requirements.
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the procyclical effects of Bank capital regulation
Documentos de Trabajo ( CEMFI ), 2012Co-Authors: Rafael Repullo, Javier SuarezAbstract:We develop and calibrate a dynamic equilibrium model of relationship lending in which Banks are unable to access the equity markets every period and the business cycle is a Markov process that determines loans’ probabilities of default. Banks anticipate that shocks to their earnings and the possible variation of capital requirements over the cycle can impair their future lending capacity and, as a precaution, hold capital buffers. We compare the relative performance of several capital regulation regimes, including one that maximizes a measure of social welfare. We show that Basel II is significantly more procyclical than Basel I, but makes Banks safer. For this reason, it dominates Basel I in terms of welfare except for small social costs of Bank Failure. We also show that for high values of this cost, Basel III points in the right direction, with higher but less cyclically-varying capital requirements.
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loan pricing under basel capital requirements
Journal of Financial Intermediation, 2004Co-Authors: Rafael Repullo, Javier SuarezAbstract:Abstract We analyze the loan pricing implications of the reform of Bank capital regulation known as Basel II. We consider a perfectly competitive market for business loans where, as in the model underlying the internal ratings based (IRB) approach of Basel II, a single risk factor explains the correlation in defaults across firms. Our loan pricing equation implies that low risk firms will achieve reductions in their loan rates by borrowing from Banks adopting the IRB approach, while high risk firms will avoid increases in their loan rates by borrowing from Banks that adopt the less risk-sensitive standardized approach of Basel II. We also show that only a very high social cost of Bank Failure might justify the proposed IRB capital charges, partly because the net interest income from performing loans is not counted as a buffer against credit losses. A net interest income correction for IRB capital requirements is proposed.
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loan pricing under basel capital requirements
Social Science Research Network, 2003Co-Authors: Rafael Repullo, Javier SuarezAbstract:We analyse the implications for the pricing of Bank loans of the reform of capital regulation known as Basel II. We consider a perfectly competitive market for business loans where, as in the model underlying the internal ratings based (IRB) approach of Basel II, a single risk factor explains the correlation in defaults across firms. Our loan pricing equation implies that low-risk firms will achieve reductions in their loan rates by borrowing from Banks adopting the IRB approach, while high-risk firms will avoid increases in their loan rates by borrowing from Banks that adopt the less risk-sensitive standardized approach of Basel II. We also show that only an extremely high social cost of Bank Failure might justify the proposed IRB capital charges for high-risk loans, partly because the margin income from performing loans is not counted as a buffer against credit losses, and we propose a margin income correction for IRB capital requirements.
Catherine Shakespeare - One of the best experts on this subject based on the ideXlab platform.
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fair value accounting for financial instruments does it improve the association between Bank leverage and credit risk
The Accounting Review, 2013Co-Authors: Elizabeth Blankespoor, Thomas J Linsmeier, Kathy R Petroni, Catherine ShakespeareAbstract:ABSTRACT : Many have argued that financial statements created under an accounting model that measures financial instruments at fair value would not fairly represent a Bank's business model. In this study we examine whether financial statements using fair values for financial instruments better describe Banks' credit risk than less fair-value-based financial statements. Specifically, we assess the extent to which various leverage ratios, which are calculated using financial instruments measured along a fair value continuum, are associated with various measures of credit risk. Our leverage ratios include financial instruments measured at (1) fair value; (2) U.S. GAAP mixed-attribute values; and (3) Tier 1 regulatory capital values. The credit risk measures we consider are bond yield spreads and future Bank Failure. We find that leverage measured using the fair values of financial instruments explains significantly more variation in bond yield spreads and Bank Failure than the other less fair-value-based lev...
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fair value accounting for financial instruments does it improve the association between Bank leverage and credit risk
Social Science Research Network, 2012Co-Authors: Elizabeth Blankespoor, Thomas J Linsmeier, Kathy R Petroni, Catherine ShakespeareAbstract:Many have argued that financial statements created under an accounting model that measures financial instruments at fair value would not fairly represent a Bank’s business model. In this study we examine whether financial statements using fair values for financial instruments better describe Banks’ credit risk than less fair-value-based financial statements. Specifically, we assess the extent to which various leverage ratios, which are calculated using financial instruments measured along a fair value continuum, are associated with various measures of credit risk. Our leverage ratios include financial instruments measured at 1) fair value; 2) US GAAP mixed-attribute values; and 3) Tier 1 regulatory capital values. The credit risk measures we consider are bond yield spreads and future Bank Failure. We find that leverage measured using the fair values of financial instruments explains significantly more variation in bond yield spreads and Bank Failure than the other less fair-value-based leverage ratios in both univariate and multivariate analyses. We also find that the fair value of loans and deposits appear to be the primary sources of incremental explanatory power.
Javier Suarez - One of the best experts on this subject based on the ideXlab platform.
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optimal dynamic capital requirements
Social Science Research Network, 2017Co-Authors: Caterina Mendicino, Kalin Nikolov, Javier Suarez, Dominik SuperaAbstract:We characterize welfare maximizing capital requirement policies in a quantitative macro-Banking model with household, firm and Bank defaults calibrated to Euro Area data. We optimize on the level of the capital requirements applied to each loan class and their sensitivity to changes in default risk. We find that getting the level right (so that Bank Failure risk remains contained) is of foremost importance, while the optimal sensitivity to default risk is positive but typically smaller than under Basel IRB formulas. Starting from low levels, savers and borrowers benefit from higher capital requirements. At higher levels, only savers prefer tighter requirements.
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optimal dynamic capital requirements
Research Papers in Economics, 2016Co-Authors: Caterina Mendicino, Kalin Nikolov, Javier Suarez, Dominik SuperaAbstract:We characterize welfare maximizing capital requirement policies in a macroeconomic model with household, firm and Bank defaults calibrated to Euro Area data. We optimize on the level of the capital requirements applied to each loan class and their sensitivity to changes in default risk. We find that getting the level right (so that Bank Failure risk remains small) is of foremost importance, while the optimal sensitivity to default risk is positive but typically smaller than under Basel IRB formulas. When starting from low levels, initially both savers and borrowers benefit from higher capital requirements. At higher levels, only savers are in favour of tighter and more time-varying capital charges.
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the procyclical effects of Bank capital regulation
Documentos de Trabajo ( CEMFI ), 2012Co-Authors: Rafael Repullo, Javier SuarezAbstract:We develop and calibrate a dynamic equilibrium model of relationship lending in which Banks are unable to access the equity markets every period and the business cycle is a Markov process that determines loans’ probabilities of default. Banks anticipate that shocks to their earnings and the possible variation of capital requirements over the cycle can impair their future lending capacity and, as a precaution, hold capital buffers. We compare the relative performance of several capital regulation regimes, including one that maximizes a measure of social welfare. We show that Basel II is significantly more procyclical than Basel I, but makes Banks safer. For this reason, it dominates Basel I in terms of welfare except for small social costs of Bank Failure. We also show that for high values of this cost, Basel III points in the right direction, with higher but less cyclically-varying capital requirements.
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loan pricing under basel capital requirements
Journal of Financial Intermediation, 2004Co-Authors: Rafael Repullo, Javier SuarezAbstract:Abstract We analyze the loan pricing implications of the reform of Bank capital regulation known as Basel II. We consider a perfectly competitive market for business loans where, as in the model underlying the internal ratings based (IRB) approach of Basel II, a single risk factor explains the correlation in defaults across firms. Our loan pricing equation implies that low risk firms will achieve reductions in their loan rates by borrowing from Banks adopting the IRB approach, while high risk firms will avoid increases in their loan rates by borrowing from Banks that adopt the less risk-sensitive standardized approach of Basel II. We also show that only a very high social cost of Bank Failure might justify the proposed IRB capital charges, partly because the net interest income from performing loans is not counted as a buffer against credit losses. A net interest income correction for IRB capital requirements is proposed.
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loan pricing under basel capital requirements
Social Science Research Network, 2003Co-Authors: Rafael Repullo, Javier SuarezAbstract:We analyse the implications for the pricing of Bank loans of the reform of capital regulation known as Basel II. We consider a perfectly competitive market for business loans where, as in the model underlying the internal ratings based (IRB) approach of Basel II, a single risk factor explains the correlation in defaults across firms. Our loan pricing equation implies that low-risk firms will achieve reductions in their loan rates by borrowing from Banks adopting the IRB approach, while high-risk firms will avoid increases in their loan rates by borrowing from Banks that adopt the less risk-sensitive standardized approach of Basel II. We also show that only an extremely high social cost of Bank Failure might justify the proposed IRB capital charges for high-risk loans, partly because the margin income from performing loans is not counted as a buffer against credit losses, and we propose a margin income correction for IRB capital requirements.
Suleyman Bilgin Kilic - One of the best experts on this subject based on the ideXlab platform.
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prediction of commercial Bank Failure via multivariate statistical analysis of financial structures the turkish case
European Journal of Operational Research, 2005Co-Authors: Serpil Canbas, Altan Cabuk, Suleyman Bilgin KilicAbstract:Abstract The objective of this paper is to propose a methodological framework for constructing the integrated early warning system (IEWS) that can be used as a decision support tool in Bank examination and supervision process for detection of Banks, which are experiencing serious problems. Sample and variable set of the study contains 40 privately owned Turkish commercial Banks (21 Banks failed during the period 1997–2003) and their financial ratios. Well known multivariate statistical technique (principal component analysis), was used to explore the basic financial characteristics of the Banks, and discriminant, logit and probit models were estimated based on these characteristics to construct IEWS. Also, importance of early warning systems in Bank examination was evaluated with respect to cost of Failure. Results of the study show that, if IEWS was effectively employed in Bank supervision, it can be possible to avoid from the Bank restructuring costs at a significant amount of rate in the long run.
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prediction of commercial Bank Failure via multivariate statistical analysis of financial structures the turkish case
European Journal of Operational Research, 2005Co-Authors: Serpil Canbas, Altan Cabuk, Suleyman Bilgin KilicAbstract:Abstract The objective of this paper is to propose a methodological framework for constructing the integrated early warning system (IEWS) that can be used as a decision support tool in Bank examination and supervision process for detection of Banks, which are experiencing serious problems. Sample and variable set of the study contains 40 privately owned Turkish commercial Banks (21 Banks failed during the period 1997–2003) and their financial ratios. Well known multivariate statistical technique (principal component analysis), was used to explore the basic financial characteristics of the Banks, and discriminant, logit and probit models were estimated based on these characteristics to construct IEWS. Also, importance of early warning systems in Bank examination was evaluated with respect to cost of Failure. Results of the study show that, if IEWS was effectively employed in Bank supervision, it can be possible to avoid from the Bank restructuring costs at a significant amount of rate in the long run.
Paul W Wilson - One of the best experts on this subject based on the ideXlab platform.
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explaining Bank Failures deposit insurance regulation and efficiency
1993Co-Authors: David C Wheelock, Paul W WilsonAbstract:This paper uses micro-level historical data to examine the causes of Bank Failure. For state charactered Kansas Banks during 19 10-28, time-to-Failure is explicitly modeled using a proportional hazards framework. In addition to standard financial ratios, this study includes membership in the voluntary state deposit insurance system and measures of technical efficiency to explain Bank Failure. The results indicate that deposit insurance system membership increased theprobability of Failure and Banks which were technically inefficient were more likely to fail than technically efficient Banks.
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explaining Bank Failures deposit insurance regulation and efficiency
The Review of Economics and Statistics, 1993Co-Authors: David C Wheelock, Paul W WilsonAbstract:This paper uses micro-level historical data to examine the causes of Bank Failure. For state-chartered Kansas Banks during 1910-28, time-to-Failure is explicitly modeled using a proportional hazards framework. In addition to standard financial ratios, this study includes membership in the voluntary state deposit insurance system and a measure of technical efficiency to explain Bank Failure. The results indicate that deposit insurance system membership increased the probability of Failure and technically inefficient Banks were more likely to fail than technically efficient Banks. Copyright 1995 by MIT Press.
