Credit Risk Capital Mitigation under BASEL II

• Main Authors: Peng Cheng Tai, 戴鵬程
• Other Authors: 蔡偉澎
• Format: Others
• Language: zh-TW
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/97526444583478253543

碩士 === 輔仁大學 === 金融研究所 === 94 === ABSTRACT The Basel Committee on Banking Supervision’s (“the Committee”) published a new regulations - The New Basel Capital Accord（BASEL II）to governing the capital adequacy of banks and to be implemented as of year-end 2006. As studied by Banking Bureau , Financial Supervisory Commission, Executive Yuan, the BIS ratio of Taiwan banks will be decreased by 1.37% when the BASEL II is implemented. To rectify this shortage of BIS ratio, the credit derivatives such as CDS are eligible by BASEL II for banks to mitigate their risk-weighted assets requirement. Therefore, this study assesses the costs and benefits of using CDS（credit default swap）to mitigate the risk-weight assets under the regulations of BASEL II and Taiwan authority. We find that 1.Banks can effectively raise their BIS ratio by using CDS but the benefits will be decreased when ratings of the CDS- counter parties are downgraded. 2.Although CDS is very useful and flexible to mitigate bank’s credit risk but it is not a cheaper hedging instrument than just by increasing eligible capital to raise the BIS ratio.