Measuring risk and gaming the system
As the chart shows the range of estimated risk densities, in this case by 30 banks that use their internal models to assess the risk of four hypothetical loan portfolios, is unacceptably wide. Cecchetti and Schoenholtz argue that the Basel’s Committee recent introduction of “a floor on the risk weights of assets” as a way to limit how banks can use their internal models in computing their risk-based capital requirement is too complex and therefore compliance will be difficult to monitor.
Basel’s Refined Capital Requirements
By: Steve Cecchetti, Kim Schoenholtz – Brandeis University, New York University
Do shadow banks benefit from financial regulation?
With flat requirements the equilibrium market structure is such that regulated banks always fund the riskiest projects, while if shadow banks operate they fund projects that are safer than those of the regulated banks. With value-at-risk based capital requirements the equilibrium market structure is such that regulated banks always fund the intermediate risk projects, while if shadow banks operate they fund the riskiest projects.
Markets, Banks and Shadow Banks
Authors: David Martinez-Miera, Rafael Repullo
From: UC3M, CEMFI
Incomplete implementation
Arestis and Sawyer evaluate the effectiveness of the four main regulation proposals that have been put forth after the Financial crisis, namely the US Dodd-Frank Act, the UK Vickers Report, the European Liikanen Report, and the Basle III Report. They conclude that the proposed regulations have either been implemented incredibly slow or have been severely watered down.
Have Financial Stability Proposals Been Implemented Properly?
By: Philip Arestis, Malcolm Sawyer – University of Cambridge, University of Leeds
