Risk Regulation in Brazil: A General Equilibrium Model

Brazilian Review of Econometrics v. 26, no 1, pp. 3-29

27 Pages Posted: 30 Sep 2013

See all articles by Aloisio Araujo

Aloisio Araujo

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças

Jose Valentim Vicente

Instituto Nacional de Matemática Pura e Aplicada (IMPA)

Date Written: May 26, 2006

Abstract

In the last few years, regulating agencies of many countries, following recommendations of the Basel Committee on Banking Supervision, have compelled financial institutions to maintain minimum capital requirements to cover market and credit risks. The capital charge to cover market risk is a function of a metric known as Value-at-Risk (VaR). This paper investigates the consequences of such practices on prices, volatilities and bankruptcy probability by considering two features of the Brazilian framework: variable risk constraint multiplier and heterogeneous beliefs between financial institutions and regulating agencies.

Keywords: Capital Requirements, Basel Capital Accord, VaR, Banking Regulation

JEL Classification: G12, G18, G20, C68

Suggested Citation

Araujo, Aloisio and Vicente, Jose Valentim, Risk Regulation in Brazil: A General Equilibrium Model (May 26, 2006). Brazilian Review of Econometrics v. 26, no 1, pp. 3-29, Available at SSRN: https://ssrn.com/abstract=2332029

Aloisio Araujo (Contact Author)

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças ( email )

Praia de Botafogo 190/1125, CEP
Rio de Janeiro RJ 22253-900
Brazil

Jose Valentim Vicente

Instituto Nacional de Matemática Pura e Aplicada (IMPA) ( email )

Estrada Dona Castorina 110
Rio de Janeiro, 22460
Brazil

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