Capital Requirements for Smes Under the Revised Basel Ii Framework

Banks and Bank Systems, Vol. 1, 2006

20 Pages Posted: 14 May 2006

See all articles by Jan S. Henneke

Jan S. Henneke

University of Karlsruhe (TH)

Stefan Trück

Macquarie University Sydney - Department of Applied Finance and Actuarial Studies; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR); Macquarie University, Macquarie Business School

Abstract

This article reviews the final changes in the Benchmark Risk Weight Function of the Basel II proposal as of June 2004. A special focus is directed to the impact of the proposed changes to the segment of Small and Mid-Sized Enterprises (SME). One of the main objectives of the recalibration of the IRB approach was to relieve capital requirements for these institutions. We further provide a comprehensive survey of empirical findings on the relationship between the asset correlation and the model parameters probability of default (PD) and firm size. We find that neither the level of asset correlation nor the assumed relationship between correlation and probability of default as it is assumed in the capital accord can be observed in the market. In a final case study we investigate the implications of changes in regulatory capital on credit spreads for SMEs.

Keywords: Basel Capital Accord, SMEs, Capital Requirements, Asset Correlations

Suggested Citation

Henneke, Jan S. and Trueck, Stefan, Capital Requirements for Smes Under the Revised Basel Ii Framework. Banks and Bank Systems, Vol. 1, 2006, Available at SSRN: https://ssrn.com/abstract=893688

Jan S. Henneke

University of Karlsruhe (TH) ( email )

Postbox
D-76128 Karlsruhe, DE 76128
Germany

Stefan Trueck (Contact Author)

Macquarie University Sydney - Department of Applied Finance and Actuarial Studies ( email )

North Ryde
Sydney, New South Wales 2109
Australia
61298508483 (Phone)
61298508483 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia