Abstract
Each of these excellent papers makes imaginative use of data reflecting actual credit loss experience to illuminate different features of the Basel Committee’s new proposal for risk-adjusted capital requirements (Basel II). Altman and Saunders (A&S, 2002) use default data on publicly traded bonds to investigate the relative risk weights for credit risk. Carey (2002) uses similar data over historical credit cycles to calibrate a model that can gauge whether absolute level of capital requirements is appropriate. I will review each contribution in turn and conclude with some additional questions about the new Basel proposal. But first, a bit of background about how international capital requirements have evolved.
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References
Altman, Edward I. and Anthony Saunders, 2002, “The Role of Credit Ratings in Bank Capital,” Chapter 4 in this volume.
Buser, S.A., A.H. Chen and E.J. Kane, 1981, “Federal deposit insurance, regulatory policy, and optimal bank capital,” Journal of Finance, 36 (March), 51–60.
Carey, Mark C., 2002, “A Policymaker’s Guide to Choosing Absolute Capital Requirements Under an IRB Approach,” Chapter 5 in this volume.
Shadow Financial Regulatory Committee, 2000, Reforming Bank Capital Regulation, Statement No. 160, March 2, 2000, The AEI Press.
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Herring, R.J. (2002). Discussion: Altman and Saunders on Relative Credit Risk & Carey on Absolute Credit Risk. In: Levich, R.M., Majnoni, G., Reinhart, C.M. (eds) Ratings, Rating Agencies and the Global Financial System. The New York University Salomon Center Series on Financial Markets and Institutions, vol 9. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-0999-8_12
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