Abstract
We explore an inconsistency in the Basel Committee’s Internal Ratings Based (IRB) rules: the capital charges on corporate loans were calibrated to loan-level data, while the capital charges on small business loans were calibrated to fit the capital that a few international banks held prior to this regulation.We argue that the IRB capital charges do not put small business and corporate loans on a level playing field. While downturn risk of corporate loans is accurately captured by the IRB formulas, we show that small businesses have low downturn risk and require 3.5 times lower capital charges than those prescribed by the Basel Committee.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
