In this paper, after conducting a series of alternative scenarios for
various factors, we examine the implementation of Basel II capital adequacy
rules on Greek Banks, according to the Internal Rating Based Approach (IRB),
introduced by Basel II Accord. The IRB approach allows the development and use
of models measuring the three main risks (credit, market, and operational).
However, up to now, the researches that have been examined these risks for
Greek Banks are very limited, and the impact of adverse events on the loan
portfolio of the Greek Banking System has not yet been satisfactorily
evaluated. In this empirical study, the Greek Banks are clustered into three
separate groups, in particularly large, medium, and small size. The model
formed provides information for supervisory reasons as for the level of capital
maintained, depending on the nature of activities and risks taken by a Bank.
The results show that the IRB approach is more appropriate for larger Banks,
which can invest in risk management and maximize profit to risk ratios. For
Banks with lower capital, this methodology could entail high risks. From the
study, it was, also observed that retail portfolios and mortgage portfolios are
favored due to credit risk, a benefit that is attributed to risk dispersion and
collaterals (mortgages).
References
[1]
Alexander, C., & Sheedy, E. (2004). The Professional Risk Manager’s Handbook: Comprehensive Guide to Current Theory and Best Practices (Vol. 3). PRMIA Publications.
[2]
Ayadi, R., & Resti, A. (2004). The New Basel Capital Accord and the Future of the European Financial System. CEPS Taskforce Report, No. 51, CEPS.
[3]
Bank of Greece (1999). Bank of Greece Governor’s Act 2442/29.1.1999.
[4]
Bartholomew, D. (2002). Multivariate Analysis Made Clear. Chapman & Hall.
[5]
Basel Committee on Banking Supervision (1988). International Convergence of Capital Measurement and Capital Standards. Bank for International Settlements, Press & Communications.
[6]
Basel Committee on Banking Supervision (1999). A New Capital Adequacy Framework. Bank for International Settlements Press & Communications.
[7]
Basel Committee on Banking Supervision (2000). Credit Ratings and Complementary Sources of Credit Quality Information. Working Paper, No. 3, Bank for International Settlements, Press & Communications.
[8]
Basel Committee on Banking Supervision (2001a). Overview of the New Basel Capital Accord, Consultative Document. Bank for International Settlements Press & Communications.
[9]
Basel Committee on Banking Supervision (2001b). The New Basel Capital Accord: An Explanatory Note. Bank for International Settlements, Press & Communications.
[10]
Basel Committee on Banking Supervision (2001c). Quantative Impact Analysis (2). Bank for International Settlements Press & Communications. https://www.bis.org/bcbs/qis/qishist.htm
[11]
Basel Committee on Banking Supervision (2002). Quantative Impact Analysis (2.5). Bank for International Settlements Press & Communications. https://www.bis.org/bcbs/qis/qishist.htm
[12]
Basel Committee on Banking Supervision (2003a). The New Basel Capital Accord, Third Consultative Document. Bank for International Settlements Press & Communications.
[13]
Basel Committee on Banking Supervision (2003b). Quantative Impact Analysis (3). Bank for International Settlements Press & Communications. https://www.bis.org/bcbs/qis/qishist.htm
[14]
Basel Committee on Banking Supervision (2004). International Convergence of Capital Measurement and Capital Standards: A Revised Framework. Bank for International Settlements Press & Communications.
[15]
Basel Committee on Banking Supervision (2005). Quantative Impact Analysis (4). Bank for International Settlements Press & Communications. https://www.bis.org/bcbs/qis/qishist.htm
[16]
Basel Committee on Banking Supervision (2006a). International Convergence of Capital Measurement and Capital Standards: A Revised Framework. Bank for International Settlements Press & Communications.
[17]
Basel Committee on Banking Supervision (2006b). Quantative Impact Analysis (5). Bank for International Settlements Press & Communications. https://www.bis.org/bcbs/qis/qishist.htm
[18]
Crouhy, M., Galai, D., & Mark, M. (2000). Risk Management. McGraw Hill.
[19]
Donatou, A., & Leventides, J. (2020). Implementation of the Basel Accords I and II in Greek Banking System: The Application of Standardized Approach. Journal of Research in Business, Economics and Management, 15, 1-15.
[20]
Foglia, A. (2009). Stress Testing Credit Risk: A Survey of Authorities’ Approaches. International Journal of Central Banking, 5, 9-45. https://doi.org/10.2139/ssrn.1396243
[21]
Haldane, A. (2009). Why Banks Filed the Stress Test (pp. 1-23). Bank of England, Vol. Speeches a, February.
[22]
Hartigan, J. (1975). Clustering Algorithms. Wiley.
[23]
Hellenic Parliament, Law 4224 (2013). Government Council Management Private Debt Greek Investment Development Fund Property of the State and Other Emergency Provisions. Government Newspaper 288A’/31.12.2013.
[24]
Hendricks, D., & Hirtle, B. (1997). Bank Capital Requirements for Market Risk: The Internal Models Approach. Federal Reserve Bank of New York. Economic Policy Review, 3, 1-12.
[25]
Jackson, P. (2002). Bank Capital: Basel II Developments (pp. 103-109). Financial Stability Review, Bank of England.
[26]
Jones, D., & Mingo, J. (1999). Credit Risk Modeling and Internal Capital Allocations. Federal Reserve Bank of New York. Economic Policy Review, 4, 53-60.
[27]
Leventides, J., & Donatou, A. (2015). The Impact of the Basel Accord on Greek Banks: A Stress Test Study. Journal of Risk and Financial Management, 8, 181-197. https://doi.org/10.3390/jrfm8020181
[28]
Ozdemir, B., & Miu, P. (2009). Basel II Implementation: A Guide to Developing and Validating a Compliant Internal Risk Rating System. McGraw Hill.
[29]
Santos, J. (2000). Bank Capital Regulation in Contemporary Banking Theory: A Review of the Literature. BIS Working Paper, No. 90, Bank for International Settlements Press & Communications. https://doi.org/10.2139/ssrn.248314