Basel Ii: Capital Requirements for Equity Investment Portfolios

Belgian Actuarial Bulletin, Vol. 5, pp. 37-45

9 Pages Posted: 1 Jun 2006 Last revised: 24 Nov 2013

Fabian Suarez

BNP Paribas

Jan Dhaene

Katholieke Universiteit Leuven - Faculty of Economics and Business

Luc Henrard

BNP Paribas

Steven Vanduffel

Vrije Universiteit Brussel (VUB)

Date Written: March 1, 2006

Abstract

The Basel Accords represent landmark financial agreements for the regulation of commercial banks. The main purpose of the accords was to strengthen the soundness and stability of the international banking system by providing a minimum standard for capital requirements. In 2004, the Basel Committee proposed new guidelines, which have become known as Basel II. We give a short overview of the Basel II framework and present the different approaches which can be used to determine the amount of regulatory capital needed for equity exposures. These methods vary from simple, rather rule of thumb methods, to more sophisticated and economic-oriented approaches. We compare the regulatory capital consumption of two equity portfolios using the different Basel II-compliant methods. We provide evidence that, as far as regulatory capital consumption for equity exposures is concerned, there is no real incentive for banks to use the more sophisticated and economic-oriented models such as VaR or EVT models.

Keywords: Capital allocation, Research, Requirements, Investment, Investment portfolio, Portfolio, Agreements, Regulation, Stability, International, Framework, Methods, Consumption, Models, Model

Suggested Citation

Suarez, Fabian and Dhaene, Jan and Henrard, Luc and Vanduffel, Steven, Basel Ii: Capital Requirements for Equity Investment Portfolios (March 1, 2006). Belgian Actuarial Bulletin, Vol. 5, pp. 37-45. Available at SSRN: https://ssrn.com/abstract=905207

Fabian Suarez (Contact Author)

BNP Paribas ( email )

Montagne Du Parc 3
Belgium

Jan Dhaene

Katholieke Universiteit Leuven - Faculty of Economics and Business ( email )

Naamsestraat 69
Leuven, 3000
Belgium

Luc Henrard

BNP Paribas ( email )

Montagne Du Parc 3
Belgium

Steven Vanduffel

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
Brussels, Brabant 1050
Belgium

HOME PAGE: http://www.stevenvanduffel.com

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