publication . Part of book or chapter of book . 2014

The Pro-Cyclical Impact of Basel III Regulatory Capital on Bank Capital Risk

Guoxiang Song;
Open Access English
  • Published: 01 Jan 2014
  • Publisher: Emerald Group Publishing Limited
  • Country: United Kingdom
Abstract
To raise the quality of regulatory capital, Basel III capital rules recognize unrealized gains and losses on all available-for-sale (AFS) securities in Common Equity Tier 1 Capital (CET1). However, by examining the correlations between U.S. GDP growth rate, interest rates and regulatory capital ratios computed using Basel III regulatory capital definition for six U.S. global systemically important banks (G-SIBs) since 2007, this chapter finds that Basel III regulatory capital will enhance the pro-cyclicality of Basel III leverage ratio and Tier 1 capital ratio and their sensitivity to long-term interest rates. Therefore, Basel III capital standards may have sign...
Subjects
free text keywords: Risk-weighted asset, Economics, Tier 1 capital, Capital adequacy ratio, Basel III, Risk-adjusted return on capital, Cost of capital, Basel I, Capital requirement, Monetary economics, Economic policy
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