On June 26th, 2004, Central bank governors and the heads of bank supervisory authorities in the Group of Ten (G10) countries issued a press release and endorsed the publication of International Convergence of Capital Measurement and Capital Standards: a Revised Framework, the new capital adequacy framework commonly known as Basel II. According to Jean Claude Trichet, Chairman of the G10 group o...

This paper explores some of the issues that arise in the regulation of Islamic capital market products and services. As many of the products are distributed to retail clients by Islamic banks and through the Islamic windows of conventional banks, it is also pertinent to deal with the regulation of these institutions, not least because of the distinctive liability and asset structures of Islamic...

This paper addresses the impact of dynamic risk management on bank risk taking. We show that when banks earn rents only from deposit insurance and can engage in risk management it is no longer in their interests to maximize risk; instead, they moderate their risk to increase their chances of survival. The paper also shows that the opportunity for risk management may change the impact of capital...

This paper presents a new approach for quantifying bank’s management quality, using a data envelopment analysis (DEA) model that combines multiple inputs and outputs to compute a scalar measure of efficiency. This measure will seek to capture a fundamental and crucial element of a bank’s success, which is its management efficiency. The results show that, on average, differences in management qu...

The logistics of knowledge means managing the need for knowledge, as well as the supply and transfer of knowledge. The transfer of knowledge occurs between generations, in a regional innovation system and today, with increasing frequency and importance, across international borders. A company`s balance sheet of knowledge gives important arguments in support of material property, which is import...

We show how conservative portfolio compression, i.e., netting cycles in a financial network, can increase systemic risk even though the exposures of all banks to each other decrease. We argue that this is because cycles enable risk sharing between the involved banks and can thus dampen the effect of a shock on the rest of the financial system. We first provide an example where under certain sho...

This paper examines the recent period of relatively low credit spreads in Japan, with particular emphasis on the market’s assessments of the credit risks of large Japanese banks implicit in the prices of credit derivatives. We extract the market-price implied likelihood of a credit event in the future, and explore the nature of the default risk premiums underlying recent changes in bank bond an...

We consider a banking model in which firms’ access to credit is constrained due to the banks’ limited risk-bearing capacities. We show that such constraints may be relaxed by allowing banks to transfer risks to outside investors. However, the market for credit risk transfer (CRT) works smoothly only if loans are based on hard, i. e., verifiable information. In contrast, the market for CRT eithe...

Over the past decade the Basel Committee on Banking Supervision (the Basel Committee) has released a number of consultative documents discussing the management and supervision of the interest rate risk inherent in a bank’s balance sheet. The Committee’s most recent release on this topic forms part of the proposed New Basel Capital Accord (the New Accord), which comes into effect in 2007, and de...

We model the effects on banks of the introduction of a market for credit derivatives; in particular, credit-default swaps. A bank can use such swaps to temporarily transfer credit risks of their loans to others, reducing the likelihood that defaulting loans trigger the bank’s financial distress. Because credit derivatives are more flexible at transferring risks than are other, more established ...