Template-type: ReDIF-Paper 1.0
Author-Name: Brunella Bruno
Author-Name: Giacomo Nocera
Author-Name: Andrea Resti 
Title: The credibility of European banks’ risk-weighted capital:  structural differences or national segmentations?
Abstract: Supranational institutions, academics and market analysts have increasingly questioned the reliability of bank risk-weighted assets (RWAs), a cornerstone of the system of minimum capital ratios designed by the Basel Committee on Banking Supervision. In fact, significant differences can be found in the banks’ average risk weights, both over time and across countries. Such differences can be explained by several factors, some of which may reflect the actual risk content of bank’s assets, while others may conceal distortions due to “RWA tweaking” and supervisory segmentations. We analyze a sample of 50 large European banks between 2008 and 2012 and document several meaningful findings. First, risk weights are affected by the banks’ size, business model and asset mix. Second, the adoption of internal ratings based (IRB) approaches is (as expected) a powerful driver of bank risk-weighted assets. Third, lower risk weights are positively linked to the banks’ capital cushion. Fourth, IRB adoption is more widespread in countries where supervisory capture is potentially stronger, due to a banking industry that is both larger (compared to GDP) and concentrated. Fifth, regulatory risk weights are not disconnected from market-based measures of bank risk.
Classification-JEL: G21, G28 
Keywords: Banks, capital, risk-weighted assets, regulation, Basel accords 
Length: 36 pages 
Number: 1509
Creation-Date: 2015
File-URL: https://repec.unibocconi.it/baffic/baf/papers/cbafwp1509.pdf
File-Format: application/pdf
File-Size: 243
Handle: RePEc:baf:cbafwp:cbafwp1509