Μπορούν οι κεφαλαιακές απαιτήσεις που βασίζονται στον κίνδυνο να ενισχύσουν τις διακυμάνσεις του επιχειρηματικού - οικονομικού κύκλου:

Θεόδουλος, Μιχαήλ

Master Thesis

Author

Θεόδουλος, Μιχαήλ

Date

2012-07-12

Abstract

In order to study those mechanisms through which capital requirements introduced by Basel II and III stimulate pro-cyclical trends in the banking industry, this paper attempts to analyze the theoretical and empirical literature on the issue of procyclicality and enlargement of economic cycles. In the first chapter is analyzed the structure of economic and business cycles and their key characteristics. Also it includes a recent article, published in November 2011 in the European Banking Federation (EFB), which examines the relationship between credit cycles and real economy (economic cycles). The next chapter identifies the main sources of procyclicality of lending. A description of the main pillars of Basel II and structure of the capital base (Core Tier 1 and 2, Supplementary Tier 1 and 2) as defined by Regulation Basel II then explains the types of credit risk (default risk, country risk, concentration risk) and the ways in which lenders are shielded from them. Moreover, there is a description of the two main approaches proposed in the CRD for the calculation of weighted risk factors and the internal standard method of assessment (initial and advanced). The chapter ends with an investigation of the pro-cyclicality in relation to the internal evaluation method while comparing two versions of the second approach on the degree of the observed procyclicality. The third chapter reviews the theoretical literature with emphasis on the views of Claudio Borio, Craig Furfine and Philip Lowe on the issue of procyclicality, while the fourth section reviews the empirical section of the literature with particular emphasis on the analysis of Roger Aliaga Diaz and Maria Olivero who attempted to prove that bank capital requirements cause credit crisis and that they operate as a financial accelerator that broadens the economic cycle, as well as the model of Repullo and Suarez who analyzed the cyclical effects of moving from a regulatory framework where the proposed non - risk sensitive (Basel I) capital requirements turn into risk- sensitive of Basel II. Also, they demonstrated that the provisions of Basel II for capital reserves that banks hold, due to the circularity of the economy could adversely affect the amount of the credit, leading to the conversion of capital reserves from countercyclical to pro-cyclical. The chapter concludes with the analysis of Juan Ayuso, Daniel Perez and Jesus Saurina about the existence of procyclicality to capital reserves of Spanish banks and the relationship of business cycles with the reserves. Chapter 4 analyzes some specific aspects (Jordan, Jokivuolle and Vesala), who questioned the pro-cyclicality as a source of danger to the economy. Alongside, some proposals are described from Gordy and Howells about the matter of reducing procyclicality. Finally, Chapter 5 identifies the weaknesses of Basel II on capital requirements that led to approval of the final version of Basel III (Seoul in November 2010). Last but not least, a comparison is included with those of Basel II that emphasizes the strengthening of capital requirements, which is achieved by introducing the new framework of Basel III.