Banking regulations have often been viewed as possible sources of procyclicality. We aim to provide a critical assessment of the risk-weighted asset estimates through the relationship between asset correlation and the probability of default as stated by international regulators. Our findings show that the relationship between asset correlation and size is not linear and also changes with the economic cycle. A risk- weighted asset computed according to regulatory assumptions would not generate the required capital relief during the downturn phase, when banks should release credit resources to support firms’ resilience. Therefore, we propose to transform the regu- latory approach to empower the procyclical issues that still remain in upturns and slowdowns in economic cycles.
Banking regulation, procyclicality, and asset correlations in the real economic environment / Vozzella, Pietro; Gabbi, Giampaolo. - In: EUROPEAN JOURNAL OF FINANCE. - ISSN 1351-847X. - STAMPA. - 28:13-15(2022), pp. 1383-1398. [10.1080/1351847X.2020.1857290]
Banking regulation, procyclicality, and asset correlations in the real economic environment
Pietro Vozzella;
2022-01-01
Abstract
Banking regulations have often been viewed as possible sources of procyclicality. We aim to provide a critical assessment of the risk-weighted asset estimates through the relationship between asset correlation and the probability of default as stated by international regulators. Our findings show that the relationship between asset correlation and size is not linear and also changes with the economic cycle. A risk- weighted asset computed according to regulatory assumptions would not generate the required capital relief during the downturn phase, when banks should release credit resources to support firms’ resilience. Therefore, we propose to transform the regu- latory approach to empower the procyclical issues that still remain in upturns and slowdowns in economic cycles.File | Dimensione | Formato | |
---|---|---|---|
Vozzella_Banking-Regulation-Procyclicality-Asset-Correlations_2022.pdf
Solo gestori archivio
Tipologia:
Versione editoriale (versione pubblicata con il layout dell'editore)
Licenza d'uso:
Licenza specifica dell’editore
Dimensione
1.96 MB
Formato
Adobe PDF
|
1.96 MB | Adobe PDF | Visualizza/Apri Richiedi una copia |
I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.