Skip to Main content Skip to Navigation
New interface
Journal articles

The Basel Accord and The Value of Bank Differentiation

Abstract : The authors investigate optimal capital requirements in a model in which banks decide on their investment in credit scoring systems. The main result is that regulators should encourage sophisticated banks to keep their asset portfolios safe, while assets with high systematic risk should be concentrated in smaller banks. The proposed regulatory differentiation follows the Basel Accord's distinction between internal ratings-based approach and standard approach. Sophisticated banks should increase their equity capital relative to other banks, leading to further size differentiation. The moral hazard problem of banks misrepresenting their loan portfolio risk is analyzed, with the result that it induces stricter capital requirements.
Document type :
Journal articles
Complete list of metadata
Contributor : Antoine Haldemann Connect in order to contact the contributor
Submitted on : Wednesday, October 3, 2012 - 7:34:40 PM
Last modification on : Saturday, June 25, 2022 - 10:53:55 AM





Ulrich Hege, Eberhard Feess. The Basel Accord and The Value of Bank Differentiation. Review of Finance, 2012, 16 (4), pp.1043-1092. ⟨10.1093/rof/rfr002⟩. ⟨hal-00738261⟩



Record views