Auditing and bank capital regulation

• Edward S. Prescott ^[1]
  1. [1] Federal Reserve Bank of Richmond
• Localización: Documentos de Trabajo ( CEMFI ), Nº. 12 (CEMFI Working Paper 0412 September 2004), 2004
• Idioma: inglés
• Enlaces
  • Texto completo (pdf)
• Resumen

  • Auditing is introduced into a model of bank capital regulation. Deterministic and stochastic auditing strategies are studied. Contrary to intuition, auditing of bank risk should be focused on the safest banks because they hold the least amount of capital. Risky banks, which hold more capital, need to be audited less. The importance of auditing by regulators and penalties for non-compliance are discussed in light of the Basel II capital regulation proposals. Emphasis is placed on the importance of supervisory review- Pillar Two of Basel II - of the accuracy of banks' reports on the risk of their assets.