Handbook of Financial Intermediation and Banking

CHAPTER 13 Basel II: A Case for Recalibration

Paul H. Kupiec

FDIC

1. Introduction

2. A Review of the AIRB Capital Framework

2.1. Discussion

3. The AIRB and Financial Stability

4. Establishing a Sound Benchmark for Risk Measurement Practices

4.1. The Need for Capital for Bank Interest Expenses

4.2. Procyclicality of the AIRB Soundness Standard

4.3. Incorporating Portfolio Interest Income

4.4. Capital for Systematic Risk in PD and LGD

4.5. Random Loss Given Default and “Downturn” LGD

4.6. Asymptotic Portfolio Loss Distribution

4.7. Random Exposures at Default (EADs)

5. Conclusion

References

The views expressed are those of the author and do not reflect the views of the FDIC. I am grateful to Rosalind Bennett, Steve Burton, Sanjiv Das, Lee ...