9th Symposium on
Finance, Banking, and Insurance
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Dr. Rita Biswas* |
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*Hochschule
für Bankwirtschaft, Bankakademie |
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The Bank for International Settlements (BIS), is proposing reforms to the Basle Accord regulating international bank capital adequacy standards. Part of the proposed reforms relate to creating more specific asset categories than the current broad structure. For instance, presently, all loans are grouped together in one broad category and have a risk weight of 100%. The other significant reform relates to increasing the risk-weights attached to mortgage loans, currently at 50%. Given their different accounting portfolios, U.S. and German banking interests have been alleged to be at conflict with the proposed reforms. The present study investigates the potential impact of these proposed changes in the international bank capital standards on large German and U.S. banks. First, using accounting data, we perform a descriptive analysis of the differential impact of the proposed reforms based on a bank’s asset composition. We focus on the balance sheet composition of the major German banks and on the potential implications of these proposed reforms on their required capital, earnings and portfolio composition. Second, using financial data, we perform a market-based analysis of the differential impact on German and U.S. banks to empirically test if indeed German banks have an advantage over their U.S. counterparts based on their asset composition. The financial analysis explores the wealth effects of the proposed changes on publicly traded German banks and on a sample of publicly traded U.S. banks. The measured wealth changes observed in the equity markets are then related in a multivariate model to the loan portfolio of the sample banks , with particular reference to their mortgage holdings and to other variables that should be associated with these wealth changes.
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