Title: Bank Capital and Loan Loss Reserves under Basel II: Implications for Emerging Countries
Abstract: This paper proposes an integrated approach to minimum bank capital and loan loss reserves regulation. The paper breaks new ground in two main areas. In the first place it provides an explicit measurement of the credit loss distribution for a sample of emerging countries providing a benchmark for discussing the appropriate calibration of new regulatory capital and loan loss provision requirements for non-G10 countries. Second, on normative grounds, it proposes a simplified version of the “internal rating based” (IRB) approach as a transition tool that, while retaining a risk-based definition of solvency ratios, implies reduced supervisory monitoring costs and could therefore be of interest to emerging countries where supervisory resources are particularly scarce.