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
Date Written: May 26, 2006
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: Suggested Citation