Are the Basel II requirements justified in the presence of structural breaks.pdf

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1、AppliedFinancialEconomics,2009,19,985–998AretheBaselIIrequirementsjustifiedinthepresenceofstructuralbreaks?Pa¨rSjo¨landerDepartmentofEconomics,Jo¨nko¨pingUniversity,Jo¨nko¨ping,SwedenE-mail:par.sjolander@ihh.hj.seTheBaselAccordandtheSwedishregulatoryauthorityFinansinspektionenstipulatethatban

2、ksandsecuritiesfirmsareobligedtoestimatetheirInternalRiskManagementModels(IRMMs)basedonaminimumtimeseriesestimationperiodlengthof1yearbackintime.Inthisarticle,theMinimumCapitalRiskRequirements(MCRRs)areestimatedusingmovingwindowsofSwedishlongandshortOMXindexfuturespositionsthatarebootstrapped

3、(inblocks)bytheuseofValue-at-RiskExponentialGeneralizedAutoregressiveConditionalHeteroscedasticity(VaR-(E)GARCH)models.Inordertodetectandadjustforstructuralchangesinthevariance,aso-calledIterativeCumulativeSumsofSquares(ICSS)algorithmisapplied.Bytheuseoftheearlier-mentionedapproach,itisconclu

4、dedthatout-of-sampleriskpredictionsaremoreaccuratewhenusingestimationperiodsshorterthan1year,probablysincerelevantinformationareoutdatedfairlyquicklyonthemarkets.Therefore,theBaselCommitteecandiscardthe1-yearrequirementwithoutincreasedriskoffinancialinstability.I.Introductionsizefitsall’appro

5、ach.Therefore,centralpartsofBaselIhaverecentlybeenupdatedintherevisionTheBankforInternationalSettlements(BIS)wascalledBaselII.Nevertheless,thechangesintheestablishedin1930,andistheworld’soldestBaselAccordregardingtheMinimumCapitalRiskinternationalfinancialinstitution.TheaimsofBISRequirements(

6、MCRRs)wereinsignificantandnothavechangedovertheyears,andin1988,bankingfundamentallyrevisedinthespiritoftherestoftheregulatorsfromtheleadingindustrialnationsBaselIIAccord.formedtheBaselCommitteeoftheBIS.ThisledTheBaselCommitteeonBankingSupervisiontotheso-calledBaselCapitalAccordwhichaimsto(200

7、5)consistsofCentralBankrepresentativesfromupholdstabilityoftheinternationalfinancial13countries,whiletheEuropeanCommissionandsystembytheobligationthatbanksshouldmain-theEuropeanCentralBank(ECB)participateastainsufficientcapitaltoabsorbunfores