XXV Edition

1-2 December 2016"

The Other Side of the Rules: an Alternative Way to Look at the 2014 Comprehensive Assessment

Orlandi Jacopo, Bank of Italy
Raponi Jacopo, Bank of Italy
Zito Giuseppe, LUISS University

In this paper, leveraging on the 2014 Comprehensive Assessment (CA) data, we perform a simulation based on a simple non-RWA sensitive measure, i.e. the leverage ratio. The outcome of such revised exercise shows remarkable differences from the actual 2014 CA results, since the leverage ratio capital shortfall reports a wider distribution across European countries, than the one reported using the CET 1 ratio as a reference measure. The evidence shows that RWA density played a significant role in determining the 2014 CA stress outcomes, generating issues about the RWA heterogeneity across Europe. Overall, our results highlight that the application of different and simpler rules, supported by the economic literature, may change the overall picture.

Area: New challenges for the future of Italian and European banks (Rivista Bancaria Award)

Keywords: internal models, Basel regulation, shortfall migration effect, risk weighted assets-density, leverage ratio, comprehensive assessment

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