Regulatory reform and risk-taking: replacing ratings /
We analyze a reform of insurance companies' capital requirements for mortgage-backed securities. First, credit ratings were replaced as inputs to capital regulation. Second, the redesigned system ensures capital buffers sufficient to withstand expected losses, but insufficient to protect agains...
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- Weitere Titel:
- Regulatory reform and risk-taking
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- Format:
- Elektronisch E-Book
- Sprache:
- Englisch
- Veröffentlicht:
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Cambridge, Mass.
National Bureau of Economic Research
2013.
- Zusammenfassung:
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We analyze a reform of insurance companies' capital requirements for mortgage-backed securities. First, credit ratings were replaced as inputs to capital regulation. Second, the redesigned system ensures capital buffers sufficient to withstand expected losses, but insufficient to protect against adverse outcomes. Many bonds are now treated as riskless and require minimal capital. By 2012, aggregate capital requirements for mortgage-backed securities have been reduced from $19.36bn (had the previous system been maintained) to $3.73bn. Exploiting that the change did not affect other asset classes, we document that insurers' risk taking was distorted and increased in response to the new regulation.
- Umfang:
- 1 online resource: illustrations (black and white);
- Anmerkungen:
- July 2013.
- Schlagworte: