A Guide to Choosing Absolute Bank Capital Requirements

Posted: 5 Aug 2002

See all articles by Mark Carey

Mark Carey

Board of Governors of the Federal Reserve - Division of International Finance (IFDP) - International Banking Section

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Abstract

Resampling implementation of a stress-scenario approach to estimating portfolio default loss distributions is proposed as the basis for estimates of the appropriate absolute level of economic capital allocations for portfolio credit risk. Estimates are presented for stress scenarios of varying severity. Implications of use of different analysis time horizons are analyzed. Results for a numeraire portfolio are quite sensitive to such variations. Although the analysis is framed in terms of recent proposals to revise regulatory capital requirements for banks, the arguments and results are also relevant for bankers making capital structure decisions.

Keywords: risk management, credit risk, capital requirements, bank regulation

JEL Classification: G11, G28, G10, G20

Suggested Citation

Carey, Mark, A Guide to Choosing Absolute Bank Capital Requirements. Journal of Banking and Finance, Vol. 26, No. 5, 2002. Available at SSRN: https://ssrn.com/abstract=315439

Mark Carey (Contact Author)

Board of Governors of the Federal Reserve - Division of International Finance (IFDP) - International Banking Section ( email )

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Washington, DC 20551
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