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An Alternative Model to Basel Regulation

Aboura, Sofiane; Lépinette, Emmanuel (2014-05), An Alternative Model to Basel Regulation, 31st International French Finance Association Conference, AFFI 2014, 2014-05, Aix-en-Provence, France

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Type
Communication / Conférence
Date
2014-05
Conference title
31st International French Finance Association Conference, AFFI 2014
Conference date
2014-05
Conference city
Aix-en-Provence
Conference country
France
Pages
20
Metadata
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Author(s)
Aboura, Sofiane
Dauphine Recherches en Management [DRM]
Lépinette, Emmanuel
CEntre de REcherches en MAthématiques de la DEcision [CEREMADE]
Abstract (EN)
The post-crisis financial reforms address the need for systemic regulation, focused not only on individual banks but also on the whole financial system. The regulator principal objective is to set banks' capital requirements equal to international minimum standards in order to mimimise systemic risk. Indeed, Basel agreement is designed to guide a judgement about minimum universal levels of capital and remains mainly microprudential in its focus rather than being macroprudential. An alternative model to Basel framework is derived where systemic risk is taken into account in each bank's dynamic. This might be a new departure for prudential policy. It allows for the regulator to compute capital and risk requirements for controlling systemic risk. Moreover, bank regulation is considered in a two-scale level, either at the bank level or at the system-wide level. We test the adequacy of the model on a data set containing 19 banks of 5 major countries from 2005 to 2012. We compute the capital ratio threshold per year for each bank and each country and we rank them according to their level of fragility. Our results suggest to consider an alternative measure of systemic risk that requires minimal capital ratios that are bank-specic and time-varying.
Subjects / Keywords
Systemic risk; Bank Regulation; Basel Accords
JEL
E44 - Financial Markets and the Macroeconomy
E58 - Central Banks and Their Policies
G01 - Financial Crises
G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
G28 - Government Policy and Regulation

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