Regulatory Problems of Commercial Banks in the Context of the European Sovereign Crisis

Abstract

This study aims to find whether regulatory measurement of banking risks proposed by the Basel Committee provide a framework that allows an adequate reflection of these risks in banks’ capital requirements. The analysis is carried through the prism of financial crisis that started in 2007 and current sovereign crisis in some European countries. In the study we investigated the problems attached to Standardized Approach and risk measurement of a financial instrument based on the rating of issuer. As a result we revealed contradiction in the current regulation, according to which risk free assets provide a better return than riskier assets. We found evidences of the gaps attached to Standardized Approach, which in current sovereign crisis can become problematic not only for commercial banks, but also for the issuers of financial instruments in which commercial banks have investments. Finally, we offered a different method of risk measurement that, we argue, provides a better measurement of banking risks as such.

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Correspondence to Gagik Grigoryan.

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Sandoyan, E., Grigoryan, G. Regulatory Problems of Commercial Banks in the Context of the European Sovereign Crisis. Transit Stud Rev 19, 339–346 (2013). https://doi.org/10.1007/s11300-012-0254-2

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Keywords

  • Financial crisis
  • Basel
  • Sovereign crisis
  • Banking Regulation

JEL Classifications

  • G01
  • G15
  • G28