Distance to Compliance Portfolios: An Integrated Shortfall Measure for Basel III

13 Pages Posted: 7 Mar 2014 Last revised: 10 Mar 2014

See all articles by Christian Schmaltz

Christian Schmaltz

Aarhus University; True North Institute

Thomas Heidorn

Frankfurt School of Finance & Management gemeinnützige GmbH

Date Written: March 10, 2014

Abstract

We develop a metric to measure how far banks are away from regulatory compliance under Basel III. Basel III consists of multiple constraints. Our measure is a portfolio that simultanously covers all constraints and their interdependencies. We apply our measure to a sample of European banks and measure how much additional capital, liquid assets and stable funding are needed for compliance. Our methodology can be generalised to measure the distance to any set of linear constraints that organisations have to (regulatory) or want to (internal) comply with. Furthermore, it is a possibility to provide Basel III - impact studies a sound microeconommic basis missing so far.

Keywords: Basel III, Linear Programming, Linear Programming

JEL Classification: G21, C61

Suggested Citation

Schmaltz, Christian and Heidorn, Thomas, Distance to Compliance Portfolios: An Integrated Shortfall Measure for Basel III (March 10, 2014). Available at SSRN: https://ssrn.com/abstract=2405460 or http://dx.doi.org/10.2139/ssrn.2405460

Christian Schmaltz (Contact Author)

Aarhus University ( email )

Nordre Ringgade 1
Aarhus, DK-8000
Denmark

True North Institute ( email )

145-157 St. John Street
London, EC1V 4PY
United Kingdom
+49-17621761996 (Phone)

HOME PAGE: http://www.tninstitute.eu

Thomas Heidorn

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

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