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Incentives for effective risk management

Danielsson, Jon, Jorgensen, Bjorn N. and de Vries, Casper G. (2002) Incentives for effective risk management. Journal of Banking and Finance, 26 (7). pp. 1407-1425. ISSN 0378-4266

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Identification Number: 10.1016/S0378-4266(02)00269-8

Abstract

Under the new Capital Accord, banks choose between two different types of risk management systems, the standard or the internal rating based approach. The paper considers how a bank's preference for a risk management system is affected by the presence of supervision by bank regulators. The model uses a principal–agent setting between a bank's owner and its risk management. The main conclusion is that previously unregulated institutions can be expected to switch to the lower quality standard approach subsequent to becoming regulated, i.e., the presence of regulation may induce a bank to decrease the quality of its risk management system.

Item Type: Article
Official URL: http://www.journals.elsevier.com/journal-of-bankin...
Additional Information: © 2002 Elsevier Science B.V.
Divisions: Accounting
Finance
Financial Markets Group
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
JEL classification: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
Date Deposited: 20 Oct 2008 10:28
Last Modified: 22 Feb 2024 02:24
URI: http://eprints.lse.ac.uk/id/eprint/18231

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