The New Basel Capital Accord: The Devil Is in the (Calibration) Details

Author/Editor:

Paul H. Kupiec

Publication Date:

August 1, 2001

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper considers characteristics of the capital requirements proposed in The New Basel Capital Accord (2001). Formal analysis identifies calibration features that could give rise to unintended consequences that may include: concentration of credit risk in institutions that are less well equipped to measure and manage risks; an overabundance of thinly capitalized high quality long-maturity credits in foundation Internal Ratings-Based (IRB) banks; distortions in the secondary market for discount or premium credits; an increase in the difficulty of resolving distressed financial institutions; and incentives to distort the accuracy of loan loss provisions.

Series:

Working Paper No. 2001/113

Subject:

Banking Bonds Credit Credit ratings Credit risk

English

Publication Date:

August 1, 2001

ISBN/ISSN:

9781451853704/1018-5941

Stock No:

WPIEA1132001

Pages:

21

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