IMF Working Papers

Heterogeneity of Bank Risk Weights in the EU: Evidence by Asset Class and Country of Counterparty Exposure

By Rima A Turk

June 9, 2017

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Rima A Turk. Heterogeneity of Bank Risk Weights in the EU: Evidence by Asset Class and Country of Counterparty Exposure, (USA: International Monetary Fund, 2017) accessed October 11, 2024

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Summary

Concerns about excessive variability in bank risk weights have prompted their review by regulators. This paper provides prima facie evidence on the extent of risk weight heterogeneity across broad asset classes and by country of counterparty for major banks in the European Union using internal models. It also finds that corporate risk weights are sensitive to the riskiness of an average representative firm, but not to a market indicator of a firm’s probablity of default. Under plausible yet severe hypothetical scenarios for harmonized risk weights, counterfactual capital ratios would decline significantly for some banks, but they would not experience a shortfall relative to Basel III’s minimum requirements. This, however, does not preclude falling short of meeting additional national supervisory capital requirements.

Subject: Banking, Capital adequacy requirements, Credit, Credit risk, External balance assessment (EBA), External position, Financial institutions, Financial regulation and supervision, Money, Mortgages

Keywords: Bank, Bank Capital, Bank portfolio risk, Bank risk measure, Basel III, Capital adequacy requirements, Capital framework, Credit, Credit exposure, Credit risk, Europe, External balance assessment (EBA), Global, IRB portfolio share, IRB risk weight, Market risk share, Mortgages, Portfolio risk weight, Regulation, Risk, Risk component, Risk weight, Risk Weights, Risk weights capture, SA portfolio decomposition, WP

Publication Details

  • Pages:

    48

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

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  • Series:

    Working Paper No. 2017/137

  • Stock No:

    WPIEA2017137

  • ISBN:

    9781484302958

  • ISSN:

    1018-5941