The impact of the Basel Accords on lender's profitability under different pricing decisions
The impact of the Basel Accords on lender's profitability under different pricing decisions
In response to the deficiencies in financial regulation revealed by the global financial crisis a new capital regulatory standard, Basel III, has been introduced. This builds on the previous regulations known as Basel I and Basel II. We look at how the interest rate charged to maximise a lender’s profitability is affected by these three versions of the Basel Accord under three types of pricing: a fixed-price model, a two-price model and a variable risk-based pricing model. We investigate the result under two different scenarios. First, a fixed price of capital, and second, a fixed amount of equity capital available. We develop an iterative algorithm for solving the latter based on solution approaches to the former. The riskiness of the portfolio has more significance than the Basel Accord requirements but the move from Basel I to Basel II has more impact than that from Basel II to Basel III
consumer credit, pricing, basel accord, regulations, lagrange multiplier
1826-1839
Huang, Bo
d14fc43d-520a-4944-9897-13303670751c
Thomas, Lyn C.
a3ce3068-328b-4bce-889f-965b0b9d2362
18 March 2015
Huang, Bo
d14fc43d-520a-4944-9897-13303670751c
Thomas, Lyn C.
a3ce3068-328b-4bce-889f-965b0b9d2362
Huang, Bo and Thomas, Lyn C.
(2015)
The impact of the Basel Accords on lender's profitability under different pricing decisions.
Journal of the Operational Research Society, 66, .
(doi:10.1057/jors.2014.101).
Abstract
In response to the deficiencies in financial regulation revealed by the global financial crisis a new capital regulatory standard, Basel III, has been introduced. This builds on the previous regulations known as Basel I and Basel II. We look at how the interest rate charged to maximise a lender’s profitability is affected by these three versions of the Basel Accord under three types of pricing: a fixed-price model, a two-price model and a variable risk-based pricing model. We investigate the result under two different scenarios. First, a fixed price of capital, and second, a fixed amount of equity capital available. We develop an iterative algorithm for solving the latter based on solution approaches to the former. The riskiness of the portfolio has more significance than the Basel Accord requirements but the move from Basel I to Basel II has more impact than that from Basel II to Basel III
Text
tjeimpact of the baselaccord sent0314.docx
- Accepted Manuscript
More information
Accepted/In Press date: 23 September 2014
e-pub ahead of print date: 18 March 2015
Published date: 18 March 2015
Keywords:
consumer credit, pricing, basel accord, regulations, lagrange multiplier
Organisations:
Centre of Excellence in Decision, Analytics & Risk Research
Identifiers
Local EPrints ID: 381680
URI: http://eprints.soton.ac.uk/id/eprint/381680
ISSN: 0160-5682
PURE UUID: b73c5b36-b4bf-42eb-8d3f-4bb2beae6ddd
Catalogue record
Date deposited: 15 Oct 2015 08:29
Last modified: 14 Mar 2024 21:18
Export record
Altmetrics
Contributors
Author:
Bo Huang
Author:
Lyn C. Thomas
Download statistics
Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.
View more statistics