The treatment of SMEs loans in the New Basel Capital Accord: some evaluations
DOI:
https://doi.org/10.13133/2037-3643/9821Keywords:
BankingAbstract
In April 2003 the Basel Committee on Banking Supervision issued a third consultative paper on the new Basel Capital Accord (Basel II). The document contains substantial changes with respect to the previous proposal of January 2001, on which improvements were requested, among other aspects, regarding the too severe treatment foreseen for loans to small and medium sized enterprises (SMEs). The aim of this paper is to analyse the treatment of SME loans under the Basel II framework and to provide an empirical evaluation of the impact of the different proposals on a large hypothetical portfolio of Italian corporations. Our simulations indicate that the prudential treatment of SME loans foreseen in the last consultative document of the Basel Committee is not penalizing with respect to the current situation. Therefore, we should not expect a reduction of credit or an increase in interest rates on loans to this type of borrowers.
JEL Codes: G21, G28, G30, L25
References
ABI - ASSOCIAZIONE BANCARIA ITALIANA (2001), Italian Banks' Position Paper on Capital Adequacy Revision, May.
ALLEN, L. and T. SAUNDERS (2003), "A survey of cyclical effects in credit risk measurement models", BIS Working Paper, no. 126, January.
ALTMAN, E., A. RESTI and A. SIRONI (2002), "The link between default and recovery rates: effects on the procyclicality of regulalTory capital ratios», BIS Working Paper, no. l13,July.
AYUSO, J., D. PÉREZ and J. SAURINA (2002), "Are capital buffers pro-cyclical?", paper presented at the conference "Basel II: An economie assessment", BIS, 14-15 May.
BCBS - BASEL COMMITTEE ON BANKING SUPERVISION (2001), The New Basel Capital Accord, Consultative Document, January.
BCBS - BASEL COMMITTEE ON BANKING SUPERVISION (2001), Results of the Second Quantitative Impact Study, November.
BCBS - BASEL COMMITTEE ON BANKING SUPERVISION (200l), "Review of procyclicality", mimeo.
BCBS - BASEL COMMITTEE ON BANKING SUPERVISION (2001), Potential Modifications to the Committee's Proposals, November.
BCBS - BASEL COMMITTEE ON BANKING SUPERVISION (2002), Results of Quantitative Impact Study 2.5, June.
BCBS - BASEL COMMITTEE ON BANKING SUPERVISION (2002), Press Statement, July 10 2002.
BCBS - BASEL COMMITTEE ON BANKING SUPERVISION (2002), QIS3 Technical Rules, October.
BCBS - BASEL COMMITIEE ON BANKING SUPERVISION (2003), The New Basel Capital Accord, Consultative Document, April.
BCBS - BASEL COMMITIEE ON BANKING SUPERVISION (2003), Quantitative Impact Study 3 - Overview of Global Results, May.
BCBS - BASEL COMMITIEE ON BANKING SUPERVISION (2003), Supplementary Information on QIS3, May.
BCBS - BASEL COMMITTEE ON BANKING SUPERVISION (2003), Basel II: Significant Progress on Major Issues, Press Release, II October 2003.
BCBS - BASEL COMMITTEE ON BANKING SUPERVISION (2004), Continued Progress toward Basel II, 15 January.
BLOCKWITZ, S., T. LIEBIG and M. NYBERG (2000), "Benchmarking Deutsche Bundesbank's Default Risk Model, the KMV® Private Firm Model ® and common financial ratios for German corporations", Deutsche Bundesbank, mimeo.
BORGIOLI, S. (1999), "An exercise lO predict corporate insolvencies using balance sheet ratios and credit relationship indicators", Banca d'Italia, mimeo.
BORIO, C., C. FURFINE and P. LOWE (2001), "Procyclicality of the financial system and financial stability: issues and policy options", BIS Papers, no. 1.
CANNATA, F., F. FABI and S. LAVIOLA (2002), "Rating interni e gestione del rischio di credito: la misurazione della probabilità di insolvenza", Bancaria, n. 4, pp. 45-62.
CANNATA, F., P. GRIPPA and S. LAVIOLA (2001), "Calibration of benchmark risk weights in the internal ratings based approach", Banca d'Italia, mimeo.
CANNATA, F. and S. LAVIOLA (2001), "Il Nuovo Accordo sul Capitale delle banche: i commenti dell'industria bancaria", Rivista Bancaria - Minerva Bancaria, n. 4, pp. 19-44.
CAROSIO, G. (2001), "Proposta di un Nuovo Accordo sul Capitale: linee generali del secondo documento di consultazione del gennaio 2001", Bancaria, n. 4, pp. 8-15.
CAROSIO, G. (2002), "Il Nuovo Accordo sul Capitale: aggiornamento sui lavori del Comitato di Basilea", Associazione per lo Sviluppo degli Studi di Banca e Borsa, Quaderno, n. 200, pp. 25-50.
CATARINEU-RABELL, E., P. JACKSON and D. TSOMOCOS (2003), "Procyclicality and the New Basel Accord - banks' choice of loan rating system", Working Paper, no. 181, Bank of England.
DANIELSSON, J. et al. (2001), "An academic response to Basel II", Special Paper, no. 130, Financial Markets Group, London School of Economics.
DIETSCH, M. (2003), "Financing small businesses in France", E/B Papers, vol. 8, no. 2.
DIETSCH, M. and J. PETEY (2003), "Should SME exposures be. treated as retail or corporate exposures? A comparative analysis of default probabilities and asset correlations in French and German SMEs", Université Robert Schuman, Working Paper.
DULLMANN, K. and H. SCHEULE (2003), "Asset correlation of German corporate obligors: its estimation, its drivers and implications for regulatory capital", paper presented at the Basel Committee's Research Task Force Workshop on 'Banking and Financial Stability', 20-21 March, Banca d'Italia, Rome.
ECB - EUROPEAN CENTRAL BANK (2001), "The new capital adequacy regime, the
ECB perspective", ECB Monthly Bulletin, pp. 59-74, May.
ERVIN, W.and T. WILDE (2001), "Procyclicality in the New Basel Accord", Credit Risk Special Report, Risk Magazine, October.
ESTRELLA, A. (2001), "The cyclical behaviour of optimal bank capital", Federal Reserve Bank of New York, mimeo.
FINGER, C. (1999), "Conditional approaches for credit metrics portfolio distributions, Credit Metrics Monitor, April, pp. 14-33.
FINGER, C. (2001), "The one-factor Credit Metrics model in the New Basel Capital Accord", Risk Metrics journal, vol. 2, no. 1, pp. 9-18.
FRYE, J. (2000), "Collateral damage", Risk Magazine, April, pp. 91-94.
GORDY, M. (2000), "A comparative anatomy of credit risk models" ,journal of Banking and Finance, January, pp. 119-49.
GORDY, M. (2001), "Credit Var and risk-bucket capital rules: a reconciliation", in Proceedings 01 the 3f? Annual Conforence on Bank Structure and Competition, Federal Reserve Bank of Chicago.
GORDY, M. (2002), A Risk Factor Model Foundation for Ratings based Bank Capital Rules, Federal Reserve Board Discussion Series.
GORDY, M. and E. HEITFIELD (2000), "Estimating factor loadings when ratings performance data are scarce", Federal Reserve Board, mimeo.
GRIPPA, P. and S. LAVIOLA (2001), "Il Nuovo Accordo sul Capitale: le ponderazioni per il rischio nell'approccio IRB", Banca d'Italia, mimeo.
GUPTON, G., C. FINGER and M. BHATIA (1997), Credit Metrics - Technical Document, Morgan Guaranty Trust Co., New York.
IEDA (2002), "Comments on 'The empirical relationship between average asset correlation, firm probability of default and asset size'", paper presented at the conference "Basel II: An economic assessment", BIS, 14-15 May. IIF - INSTITUTE OF INTERNA TIONAL FINANCE (2001), Report of the Working Group on Capital Adequacy, May, Washington.
ISDA - INTERNATIONAL SWAPS ANO DERIVATIVES ASSOCIATION (2001), ISDA 's Response to the Basel Committee on Banking Supervision 's Consultation on the New Capital Accord, May, London.
JACKSON, P. et al. (1999), "Capital requirements and bank behaviour: the impact of the Basel Accord", Basel Committee on Banking Supervision Working Paper, no. 1. JORDAN, J., J. PEEK and E. ROSENGREN (2002), "Credit risk modeling and the cyclicality of capital", paper presented at the conference on "Changes in Risk through Time: Measurement and Policy Options", BIS, Basel, 6 March.
LAVIOLA, S. (2001), "Il nuovo accordo sul capitale: il metodo dei rating interni", Bancaria, n. 4, pp. 24-38.
LOPEZ, J. (2002), "The relationship between average asset correlation, firm probability of default and asset size", paper presented at the conference "Basel II: An economic assessment", BIS, 14-15 May.
LOWE, P. (2002), "Credit risk measurement and procyc1icality", BIS Working Paper, no. 116, September.
MASSCHELEIN, N. (2003), "The Basel II capitai accord, SME loans and implications far Belgium", Financial Stability Review, National Bank of Belgium, June, pp. 151-72.
MOODY'S INVESTORS SERVICE (2000), Risk CaF Private Model: Moody's Default Model for Private Firms, May, New York.
PERRAUDIN, W. and T. Hu (2002), "The dependence of recovery rates and defaults", Birkbeck College, UK, mimeo.
RESTI, A. (2002), "The New Basel Capital Accord: structure, possible changes, micro and macroeconomic effects", Centre far European Policy Studies, Bruxelles, mimeo.
RMA - RISK MANAGEMENT ASSOCIATION (2003), "Retail credit economic capital estimation - Best practices", mimeo.
SAURINA, J. and C. TRUCHARTE (2003), "The impact of Basel II on lending to small and medium-sized firms. A regulatory policy assessment based on the Spanish credit register", Bank of Spain, mimeo.
SEGOVIANO, M.A. and P. LOWE (2002), "Internal ratings, the business cycle and capital requirements: some evidence from an emerging market economy", BIS Working Paper, no. 117, September.
SIRONI, A. and C. ZAZZARA (2002), "The New Basel Accord: implications for large Italian banks", Review oj Financial Economics, special issue on "The Industrial Organization of Banking and Financial Markets".
TRUCHANTE , C. and A. MARCELO (2002), "Un sistema de clasification de accreditados", Estabilidad fìnancieira, n. 2, marzo, pp. 93-115.
WILDE, T. (2001), "IRB approach explained", Risk, May, pp. 87-90.
Downloads
Published
How to Cite
Issue
Section
License
