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The treatment of Credit Risk in the Basel Accord and Financial Stability

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  • Marie-Florence Lamy

    (Pôle Finance Responsable - Rouen Business School - Rouen Business School)

Abstract

This paper discusses the Treatment of Credit Risk in the new Basel Accord that aims at improving financial stability in the world. It addresses the issue of the procyclicity effect of the new framework and the consequences on corporate financing. It then specially focuses on the treatment of maturity in the credit risk measurement and shows that it has a perverse effect leading banks to lend short for industrial assets and takeovers, which might be a factor of unstability. The choice of the Value-at-Risk as a measure of credit risk and linked liquidity aspects are discussed to conclude that the new Basel Accord should encourage A-rated banks to act as liquidity providers in economic slowdown phases.

Suggested Citation

  • Marie-Florence Lamy, 2006. "The treatment of Credit Risk in the Basel Accord and Financial Stability," Post-Print hal-00566534, HAL.
    • Handle: RePEc:hal:journl:hal-00566534
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    Cited by:

    1. Wynand Smit & Gary van Vuuren and Paul Styger, 2011. "Economic capital for credit risk in the trading book," South African Journal of Economic and Management Sciences, University of Pretoria, Faculty of Economic and Management Sciences, vol. 14(2), pages 138-152, June.

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