Basel II, External Ratings and Adverse Selection

Akhtar, S. and Bannier, C. and Tyrell, M. and Elizalde, A. and Janda, K. and Lind, G. (2008): Basel II, External Ratings and Adverse Selection.

Abstract

This paper will describe and analyse the development of Basel II Capital Accord and will focus on the use of external ratings in the Standardized Approach in Basel II. Furthermore it will examine the problem of adverse selection which appears in Basel II as a result from the proposal for the use of external ratings in determining the risk weights in the standardized approach. The paper will also attempt to find possible solutions to the adverse selection problem by discussing two similar models, and derive implications from them.

• Item Type: MPRA Paper
• Language: English
• Keywords: Basel II, external ratings, adverse selection, rating agencies, standardized approach
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking ; Venture Capital ; Brokerage ; Ratings and Ratings Agencies

References

List of references: Akhtar, S. (2006), “Demystifying Basel II”, Keynote Address delivered at FICCI-IBA Conference on “Global Banking: Paradigm Shift” at Mumbai, India

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Elizalde, A. (2007), “From Basel I to Basel II: An Analysis of the Three Pillars”, CEMFI Working Paper No. 0704

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Lind, G (2005), “Basel II – The New Framework for Bank Capital”, Economic Review 2/2005

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