Basel Committee on Banking Supervision Studies on credit risk concentration (original) (raw)

Inside the Labyrinth of Basel Risk-Weighted Assets: How Not to Get Lost

SSRN Electronic Journal, 2012

Many studies have questioned the reliability of banks' calculations of riskweighted assets (RWA) for prudential purposes. The significant divergences found at international level are taken as indicating excessive subjectivity in the current rules governing banks' risk measurement and capital requirement calculations. This paper emphasises the need for appropriate metrics to compare banks' riskiness under a risksensitive framework (either Basel 2 or Basel 3). The ratio of RWA to total assetswhich is widely used for peer analyses-is a valuable starting point, but when analysis becomes more detailed it needs to be supplemented by other indicators. Focusing on credit risk, we propose an analytical methodology to disentangle the major factors in RWA differences and, using data from Italian banks (given the inadequate degree of detail of Pillar 3 reports), we show that a large part of the interbank dispersion is explained by the business mix of individual institutions as well as the use of different prudential approaches (standardised and IRB). In conclusion we propose a simple data template that international banks could use to apply the framework suggested.

The Potential Effect of the New Basel Operational Risk Capital Requirements

SSRN Electronic Journal, 2004

The three pillars of Basel II introduce new capital ratios, new supervisory procedures, and demand better disclosure to ensure effective market discipline in both the equity and debt markets. Included in these requirements, for the first time, is the necessity for financial institutions to provide for operational risk, as distinct from credit and market risk. This is considered to be most problematic of Basel II requirements, posing difficulties of definition, implementation, and strategic planning. It will affect product development, investment and asset mix, as well as requiring the rapid development of new risk rating models and techniques together with vastly expanded internal and external audit compliance routines. The issues of cost, necessity and difficulties of measuring operational risk are examined in this paper. Apart from micro effects on bank pricing, macro questions of restriction of credit and distortions in systems efficiency need to be addressed. Such issues are considered in the context of reasons for bank failure and the effect on systemic goals of stability and safety.

The New Basel Accord and Credit Risk Management

2010

Abstract The paper discusses in brief the implications Basel II regarding assessment of credit risk in the commercial banking sector under both the standardized approach and the foundation and advanced Internal Rating Based Approach. The paper also provides a brief review of some of the popular credit risk models and discusses the important issues relating to the integration of portfolio credit risk models with the risk bucket rule of BCBS (Basel Committee on Banking Supervision).

Basel II and Operational Risk - Overview of Key Concerns

SSRN Electronic Journal, 2004

The requirement, for the first time, by national regulators following the Bank for International Settlements guidelines for financial institutions to provide for operational risk, as distinct from credit and market risk, is posing difficulties of definition, implementation, and strategic planning. The three pillars of Basel II introduce new capital ratios, new supervisory procedures, and demand better disclosure to ensure effective market discipline in both the equity and debt markets. This will affect product development, investment and asset mix, as well as requiring the rapid development of new risk rating models and techniques together with vastly expanded internal and external audit compliance routines.

An Alternative Operational Risk Framework OpRisk Partnership Response to a proposal for a New Basel Capital Accord published by the Basel Committee on Banking Supervision

This paper is a response to the proposal of the Basel Committee for Banking Supervision for a New Capital Adequacy framework that was published on 16 th January 2001. It aims to contribute to the discussion about the capital charge for operational risk by addressing the issue from an alternative perspective. The authors believe that there is an inherent contradiction at the core of the operational risk controversy. The definition of operational risk is cause-based as it defines operational risk as losses caused by specific, if broadly defined, causes whereas systemic safety requires effect-based protection that deals with all operational losses whatever their cause. The operational risk capital buffer is designed to protect institutions from the effects of operational losses. If the causes to which the buffer will respond are specified, institutions will not be protected from effects resulting from unspecified causes. However, in the response the authors do not focus on the definition of operational risk, instead the aim is to present a more constructive approach. The paper develops a viable mechanism for operational risk assessment, measurement, modelling, pricing, rating and transfer. It addresses the issues of economic incentives for banks to comply with the proposed regulatory framework, measurement and modelling in the context of a collaborative framework, the cost of capital and the need for consistency and global standards. The concepts underpinning its conclusions are based on the importance of incentive-compatibility in a regulatory framework and the effective use of market discipline. First, the section on regulation briefly examines the rationale for banking regulation, followed by a section on securitisation that explores alternative sources of operational risk capital. The section on modelling places the measurement and assessment of operational risk into a collaborative framework and the section on disclosure addresses the need for operational loss data for the purposes of modelling as well as market discipline.

Comments on the BCBS proposal for a New Standardized Approach for Operational Risk

arXiv: Risk Management, 2016

On March 4th 2016 the Basel Committee on Banking Supervision published a consultative document where a new methodology, called the Standardized Measurement Approach (SMA), is introduced for computing Operational Risk regulatory capital for banks. In this note, the behavior of the SMA is studied under a variety of hypothetical and realistic conditions, showing that the simplicity of the new approach is very costly on other aspects: we find that the SMA does not respond appropriately to changes in the risk profile of a bank, nor is it capable of differentiating among the range of possible risk profiles across banks; that SMA capital results generally appear to be more variable across banks than the previous AMA option of fitting the loss data; that the SMA can result in banks over- or under-insuring against operational risks relative to previous AMA standards. Finally, we argue that the SMA is not only retrograde in terms of its capability to measure risk, but perhaps more importantly...