Abstract
In this paper, we have revised and updated our earlier study in order to analyze the most recent (second) draft of the BIS's proposed reforms of bank capital requirements. We conduct Monte-Carlo experiments using data on defaults and severity rates on publicly-traded US corporate bonds over the 1981-1999 period. Analyzing the whole period and various sub-periods, it is clear that the most recent draft of the BIS proposed reforms seriously overestimates the relative riskiness of high-quality debt relative to low quality debt in the so-called standardized model. As a result, the most recent proposal still contains inherent risk-shifting (taking) incentives for banks.
Original language | English (US) |
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Pages (from-to) | 909-921 |
Number of pages | 13 |
Journal | Journal of Banking and Finance |
Volume | 26 |
Issue number | 5 |
DOIs | |
State | Published - Jan 1 2002 |
Externally published | Yes |
Keywords
- Basel II
- Bond defaults
- Capital adequacy
- Credit ratings
- Default losses
ASJC Scopus subject areas
- Finance
- Economics and Econometrics