ScholarLens Back to search
2007•RePEc: Research Papers in EconomicsRequires access

FROM BASEL I TO BASEL II: AN ANALYSIS OF THE THREE PILLARS

Abel Elizalde

Open publisher page 20 citations

Abstract

This paper presents a dynamic model of banking supervision to analyze the impact of each of Basell II three pillars on banks’ risk taking. We extend previous literature providing an analysis of ratings-based supervisory policies. In Pillar 2 (supervisory review) the supervisor audits more frequently low rated banks and restricts their dividend payments in order to build capital. In Pillar 3 (market discipline) the supervisor reduces the level of deposit insurance coverage compelling not-fully insured depositors to adjust interest rates contingent on the bank’s external rating. We also analyze the risk sensitiveness of Pillar 1 (capital requirements) concluding that all three Pillars reduce banks’ risk taking incentives.

Open-access reader

About this research paper

What this paper is about

This paper presents a dynamic model of banking supervision to analyze the impact of each of Basell II three pillars on banks’ risk taking. We extend previous literature providing an analysis of ratings-based supervisory policies. In Pillar 2 (supervisory review) the supervisor audits more frequently low rated banks and restricts their dividend payments in order to build capital. In Pillar 3 (market discipline) the supervisor reduces the level of deposit insurance coverage compelling not-fully insured depositors to adjust interest rates contingent on the bank’s external rating. We also analyze the risk sensitiveness of Pillar 1 (capital requirements) concluding that all three Pillars reduce banks’ risk taking incentives.

Why it matters

OpenAlex reports 20 citations for this work. Citation counts describe recorded attention and do not establish research quality.

Key contribution

A contribution statement is not available in the OpenAlex record.

Method / approach

Method details are not available in the OpenAlex metadata.

Main findings

Findings are not separately available in the OpenAlex metadata.

Limitations

Limitations are not available in the OpenAlex metadata.

Applications

Application details are not available in the OpenAlex metadata.

Available abstract

This paper presents a dynamic model of banking supervision to analyze the impact of each of Basell II three pillars on banks’ risk taking. We extend previous literature providing an analysis of ratings-based supervisory policies. In Pillar 2 (supervisory review) the supervisor audits more frequently low rated banks and restricts their dividend payments in order to build capital. In Pillar 3 (market discipline) the supervisor reduces the level of deposit insurance coverage compelling not-fully insured depositors to adjust interest rates contingent on the bank’s external rating. We also analyze the risk sensitiveness of Pillar 1 (capital requirements) concluding that all three Pillars reduce banks’ risk taking incentives.

Key concepts: Basel II, Supervisor, Risk-weighted asset, Incentive, Operational risk, Pillar, Business, Deposit insurance

Related papers

Related paper 1Related paper 2Related paper 3
Back to paper searchBrowse research topicsOriginal source
FROM BASEL I TO BASEL II: AN ANALYSIS OF THE THREE PILLARS — Research Paper | ScholarLens