Bank Participation in Private Equity Funds: Risk Implication and Capital Adequacy

20 Pages Posted: 25 Aug 2009 Last revised: 24 Nov 2009

See all articles by Debarshi Sanyal

Debarshi Sanyal

ANZ (Australia and New Zealand) Banking Group, Ltd.

Date Written: August 24, 2009

Abstract

World markets have seen a dramatic growth in Private Equity (PE) in the last decade. Substantial portion of the new investments in PE has come from commercial banks. This study estimates the regulatory capital requirement of standard PE portfolios and evaluates various methods proposed in the Basel II regulatory guideline, in the light of the growing concern for adequate capitalisation of bank portfolios. Value-at-risk assessments are based on an ARMA-GARCH forecast model. Whereas the Basel II simple risk weight prescription for PE stands at 400% the study finds that less than 900% risk weights could be undercapitalising the portfolios.

Keywords: Private Equity, Regulatory Capital, Risk Management

JEL Classification: G21, G28, G32

Suggested Citation

Sanyal, Debarshi, Bank Participation in Private Equity Funds: Risk Implication and Capital Adequacy (August 24, 2009). 22nd Australasian Finance and Banking Conference 2009, Available at SSRN: https://ssrn.com/abstract=1460577 or http://dx.doi.org/10.2139/ssrn.1460577

Debarshi Sanyal (Contact Author)

ANZ (Australia and New Zealand) Banking Group, Ltd. ( email )

Melbourne, Victoria
Australia

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