This paper examines the risk/return performance of European bank stocks before and after the implementation of the minimum capital requirements under the Basel Accord of 1988. We compare the performance of banks in Belgium, Denmark, Germany, Ireland, Italy, the Netherlands, Scandinavia,...

In this paper we examine the current disclosure standards of financial institutions with regards to their operational risk measurement and management systems. Our sample covers 57 financial institutions across five countries. We discuss our findings in light of the Basel II recommendations on...

All banks must hold capital equal to the minimum regulatory requirement. However, in many cases the level of regulatory capital diverges from the actual (economic) capital held by banks. A bank's actual capital is typically linked to a target credit rating, which is in turn determined by the...

This paper examines the question of how to efficiently align the investment decisions of managers in a bank with the risk/return goals of the centre of the bank. It argues that the contemporary approach aimed at achieving such alignment, which involves the top-down allocation of some proportion...

In June 2004 the Basel Committee on Banking Supervision of the Bank for International Settlements issued its revised framework for the international convergence of capital measurement and capital standards. In developing the framework the Committee has sought to determine risk-sensitive capital...

Extreme value theory (EVT) is regularly put forwarded by academics, practitioners and banking regulators as a methodology for measuring the likelihood of operational risk losses that have a very low probability of occurrence, but which have the potential for catastrophic outcomes in terms of...

This paper develops a framework for examining the impact of changes in the solvency standard of a bank (target credit rating) on the pricing of bank assets. We show that the decision of a bank to increase its solvency standard increases the price of bank assets to the extent that a bank prices...

It is somewhat ironic that while the major focus of regulators and institutions in the financial services sector over recent years has been on developing models for measuring and managing credit risk, most of the large losses in financial institutions over this time have been sourced to...

Within the context of a banking institution, economic capital is a statistical measure of the amount of resources required to meet unexpected losses over a specified time period and specified level of certainty. The amount of economic capital held by banks is thus a function of their target...

This paper examines how the structural form of a bank's compensation payment function may impact on incentive-compatibility conditions between the centre of the bank (principal) and managers in the bank (agents). If this payment function is asymmetrical, with bonuses paid only upon the...