Publication: A Cost-Benefit Analysis of Capital Requirements Adjusted for Model Risk
A Cost-Benefit Analysis of Capital Requirements Adjusted for Model Risk
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Farkas, W., Fringuellotti, F., & Tunaru, R. (2020). A Cost-Benefit Analysis of Capital Requirements Adjusted for Model Risk. Journal of Corporate Finance, 65, 101753. https://doi.org/10.1016/j.jcorpfin.2020.101753
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Capital adequacy is the key microprudential and macroprudential tool of banking regulation. Financial models of capital adequacy are subject to errors, which may prevent from estimating a sufficient capital base to absorb bank losses during economic downturns. In this paper, we propose a general method to account for model risk in capital requirements calculus related to market risk. We then evaluate and compare our capital requirements values with those obtained under Basel 2.5 and the new Basel 4 regulation. Capital requirements adj
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- Fringuellotti, Fulvia
- Tunaru, Radu
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Farkas, W., Fringuellotti, F., & Tunaru, R. (2020). A Cost-Benefit Analysis of Capital Requirements Adjusted for Model Risk. Journal of Corporate Finance, 65, 101753. https://doi.org/10.1016/j.jcorpfin.2020.101753