Economics, Econometrics and Finance
4 years ago

New method for capital requirements reduces banking losses during economic downturns.

Journal of Corporate Finance
A cost-benefit analysis of capital requirements adjusted for model risk
Walter Farkas, Fulvia Fringuellotti, Radu Tunaru

Paper Summary

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The article discusses a method to adjust capital requirements in banking to account for errors in financial models. This method helps ensure banks have enough money to cover losses during tough economic times. The adjusted capital requirements perform well in preventing losses and are as safe as the new Basel 4 rules, but with less ups and downs over time.