Abstract
Risk-based capital adequacy requirements are the main tool employed by government regulators to assure bank stability. This approach allows banks to choose from a number of alternative methods for calculating the required capital. Many systems for measuring risk differ significantly in cost, precision, and in the potential " capital savings" . We develop a statistical model for evaluating risk measurement systems and optimizing the selection process. The model is based on queuing theory. The selection of the optimal system is a function of available capital, the volume and the character of bank activity. While the most precise system may lower a bank's minimal capital reserve requirements, it is not necessarily the optimal system once total costs are evaluated.
| Original language | English |
|---|---|
| Pages (from-to) | 199-213 |
| Number of pages | 15 |
| Journal | Journal of Economics and Business |
| Volume | 64 |
| Issue number | 3 |
| DOIs | |
| State | Published - May 2012 |
Keywords
- Basel accord
- Capital adequacy
- Erlang formula
- Financial institution regulation
- Queuing theory
- Risk measurement
- Value-at-Risk (VaR)
All Science Journal Classification (ASJC) codes
- General Business,Management and Accounting
- Economics and Econometrics
