Bank size and risk-taking under Basel II

Arbeitspapier

This paper discusses the relationship between bank size and risk-taking under Pillar I of the New Basel Capital Accord. Using a model with imperfect competition and moral hazard, we find that small banks (and hence small borrowers) may profit from the introduction of an internal ratings based (IRB) approach if this approach is applied uniformly across banks. However, the banks’ right to choose between the standardized and the IRB approaches unambiguously hurts small banks, and pushes them towards higher risk-taking due to fiercer competition. This may even lead to higher aggregate risk in the economy.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Preprints of the Max Planck Institute for Research on Collective Goods ; No. 2005,6

Classification and Topics

• Classification: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation ; Production, Pricing, and Market Structure; Size Distribution of Firms
• Subject: Basel II ; IRB approach ; bank competition ; capital requirements ; SME financing ; Bank ; Betriebsgröße ; Kreditrisiko ; Bankrisiko ; Unvollkommener Wettbewerb ; Eigenkapitalvorschriften ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hakenes, Hendrik ; Schnabel, Isabel
• Event: Veröffentlichung
• (who): Max Planck Institute for Research on Collective Goods
• (where): Bonn
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/26863
• Last update: 10.03.2025, 11:42 AM CET