Bank safety under Basel II capital requirements

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Title: Bank safety under Basel II capital requirements
ISBN: 978-952-462-546-3
Author: Vauhkonen, Jukka
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2009
Series number: 29/2009
Year of publication: 2009
Publication date: 5.10.2009
Published in: Published in Journal of Financial Services Research, Volume 41, Numbers 1-2, 2012: 37-49
DOI: 10.1007/s10693-011-0107-x
Pages: 33 s.
Keywords: pankkitoiminta; pääomavaatimus; vakavaraisuus; informaatio; sääntely; moral hazard; riskit; kansainvälinen;
Abstract: We consider the impact of mandatory information disclosure on bank safety in a spatial model of banking competition in which a bank s probability of success depends on the quality of its risk measurement and management systems. Under Basel II capital requirements, this quality is either fully or partially disclosed to market participants by the Pillar 3 disclosures. We show that, under stringent Pillar 3 disclosure requirements, banks equilibrium probability of success and total welfare may be higher under a simple Basel II standardized approach than under the more sophisticated internal ratings-based (IRB) approach.

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