We explore the impact of sophistication in risk management as required by Basel II on banking stability and market … which banks are able to assess the default risk of individual firms. We show that sophistication in banking decreases …

We investigate the question of whether sophistication in risk management fosters banking stability. We compare a simple … default risk of entrepreneurs individually. Both banking systems compete for deposits, loans, and equity. While a … and finances more entrepreneurs. Expected repayments in a simple system are always higher and its default risk is lower if …