Cover IMF Working Papers
Internal Models-Based Capital Regulation and Bank Risk-Taking Incentives
Author:
Mr. Paul H. Kupiec
Search for other papers by Mr. Paul H. Kupiec in
Current site
Google ScholarClose
Series:
IMF Working Papers
Volume/Issue:
Volume 2002: Issue 125
Language:
English
Publication Date:
01 Jul 2002
DOI:
https://doi.org/10.5089/9781451854831.001
ISBN:
9781451854831
ISSN:
1018-5941
Pages:
32
Keywords:
WP; market value
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (902.8 KB) Download Epub
Advocates for internal model-based capital regulation argue that this approach will reduce costs and remove distortions that are created by rules-based capital regulations. These claims are examined using a Merton-style model of deposit insurance. Analysis shows that internal model-based capital estimates are biased by safety-net-generated funding subsidies that convey to bank shareholders when market and credit risk regulatory capital requirements are set using bank internal model estimates. These subsidies are not uniform across the risk spectrum, and, as a consequence, internal model regulatory capital requirements will cause distortions in bank lending behavior.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2002: Issue 125