Nachane, D M and Narain, Aditya and Ghosh, Saibal and Sahoo, Satyananda (2001): Regulating Market Risks in Banks: A Comparison of Alternate Regulatory Regimes. Published in: ICRA Bulletin on Money and Finance , Vol. 5, No. 1 (June 2001): pp. 125-142.
Download (346kB) | Preview
Regulators have traditionally used simple models to measure the capital adequacy of banks. The growing internationalisation and universalisation of banking operations have meant that the same is no longer possible, as banks face increasing, and increasingly opaque, market risk. The significance of market risk has also been acknowledged in the New Capital Accord enunciated by the Basel Committee in 1999. The focus of the paper is on market risk, that is, any market related factor that affects the value of a position in the financial instrument or a portfolio of instruments. As it stands at present, the three commonly used approaches to regulating market risks in banks include the building block approach, internal model approach and precommitment approach. The paper evaluates the pros and cons of the various approaches and concludes with a discussion of the applicability of these models in the Indian context.
|Item Type:||MPRA Paper|
|Original Title:||Regulating Market Risks in Banks: A Comparison of Alternate Regulatory Regimes|
|Keywords:||VaR; banking; India; market risk|
|Subjects:||G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill|
|Depositing User:||Saibal Ghosh|
|Date Deposited:||15. Sep 2009 17:38|
|Last Modified:||12. Feb 2013 01:26|
Considine, J (1998), ‘Pilot Exercise-Pre-commitment Approach to Market Risk’, Federal Reserve Bank of New York Economic Policy Review, October, 131-135.
Crouhy, M.,D.Galai and R. Mark (1997), ‘A Comparison between the BIS Standardised Approach and the Internal Models Approach’, in D.Galai, D.Rutherberg, M.Sarnat and B.Z.Schreiber (eds.) Risk Management and Regulation in Banking, Kluwer Academic Publishers: Boston.
Daripa, A., P.Jackson and S.Vorotto (1997), ‘The Pre-commitment Approach to Setting Capital Requirements’, Financial Stability Review, Autumn, 42-50.
Dewartipont,M and J.Tirole (1994) The Prudential Regulation of Banks, MIT Press.
Government of India (1998), Report of the Committee on Banking Sector Reforms (Chairman: Shri. M.Narasimham), New Delhi.
Hellmann, T.F., K.C.Murdock and J.E.Stiglitz (2000), ‘Liberalisation, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?’, American Economic Review, 90, 147-165.
Kupiec, P.H. and J.M.O’Brien (1997), ‘The Pre-Commitment Approach: Using Incentives to Set Market Risk Capital Requirements’, Finance and Economics Discussion Series No.14, Federal Reserve Board, Washington DC.
Nachane, D.M., Aditya Narain, Saibal Ghosh and Satyananda Sahoo (2000), Capital Adequacy Requirements and the Behaviour of Commercial Banks in India: An Analytical and Empirical Study, Development Research Group, Study No. 22, Reserve Bank of India: Mumbai.
Okina, K., M.Shirakawa and S.Shiratsuka (1999), ‘Financial Market Globalisation: Present and Future’, Bank of Japan: Monetary and Economic Studies, pp.1-40.
Rochet, J (1999), ‘Solvency Regulations and the Management of Banking Risks’, European Economic Review: Papers and Proceedings, 43, 981-90.
Reserve Bank of India (1999), Risk Management Systems in Banks-Guidelines, Reserve Bank of India: Mumbai.
Reserve Bank of India (2000), Mid-term Review of the Monetary and Credit Policy for the year 2000-2001, Reserve Bank of India: Mumbai.
Reserve Bank of India (2000), Report of the Advisory Group on Banking Supervision (Part-I), Reserve Bank of India: Mumbai.
Stephanou, C (1996), ‘Regulating Market Risks in Banks’, Policy Research Working Paper No.1692, The World Bank: Washington D.C.