Gene Ambrocio, Esa Jokivuolle, 14 May 2018

The Basel III reform raised banks’ capital requirement per risk-weighted assets considerably, while risk weights were largely unchanged. This column uses a simple model to explore whether these risk weights discourage productive business investments. The model shows that when firms face collateral constraints, the optimal risk weights on corporate loans should be ‘flatter’ than they are at present. A quantitative assessment, however, suggests that welfare losses from the current system may not be large.

Avinash Persaud, 07 October 2008

Subprime mortgages account for less than 1% of the world’s debt stock. How could they cause the greatest financial crisis in modern times? “Risk sensitivity” is this column’s answer. Regulators gave bankers incentives to combine bad loans with good ones and securitise the package in complex structures. The inseparability of the suspect parts meant problems with one package questioned the value of all packages. The least liquid banks failed, triggering a vicious cycle of fear and failure.

Events

  • 17 - 18 August 2019 / Peking University, Beijing / Chinese University of Hong Kong – Tsinghua University Joint Research Center for Chinese Economy, the Institute for Emerging Market Studies at Hong Kong University of Science and Technology, the Guanghua School of Management at Peking University, the Stanford Center on Global Poverty and Development at Stanford University, the School of Economics and Management at Tsinghua University, BREAD, NBER and CEPR
  • 19 - 20 August 2019 / Vienna, Palais Coburg / WU Research Institute for Capital Markets (ISK)
  • 29 - 30 August 2019 / Galatina, Italy /
  • 4 - 5 September 2019 / Roma Eventi, Congress Center, Pontificia Università Gregoriana Piazza della Pilotta, 4, Rome, Italy / European Center of Sustainable Development , CIT University
  • 9 - 14 September 2019 / Guildford, Surrey, UK / The University of Surrey

CEPR Policy Research