The Basel II internal ratings based (IRB) model and the transition impact on the listed Greek banks

Journal of Economic Asymmetries. 2020. Vol. 22. No. e00183.

Merikas A., Merika A., Penikas H. I., Surkov M.

The Basel II accord implemented in 2006, meant that banks worldwide could use Internal Ratings-Based (IRB) models, in order to evaluate the components of their Capital Adequacy Ratio (CAR). In 2017 the IRB approach was also included into the Basel III Framework. The financial crisis of 2007-09 revealed the unsustainability of the Greek debt and lead the economy into a deep and prolonged recession. As a result the Greek stock exchange and the quotes of Greek banks plummeted. Five out of the six listed Greek banks adopted IRB models between 2008 and 2017. This paper investigates whether Greek IRB-banks performed better, within the adverse economic conditions, compared to the non-IRB banks. Difference-in-difference (DiD) and spatial DiD methodologies are employed and annual data from the Athens stock exchange, over the period 2001–2017, is used. It appears that there is a negative impact of the IRB implementation on listed Greek banks. This is mainly attributed to the higher cost involved in deriving risk estimates with the IRB approach, especially during this period of the stressful economic conditions. It is also attributed though to the restrictive regulatory measures imposed on Greek banks, which minimized any benefits derived from the IRB transition.

Keywords: Греция, Базель II, Basel II, Greece, подход на основе внутренних рейтингов, ПВР, IRB, Internal-rating-based approach, Risk-weight, Риск-веса

Publication based on the results of: Decision making and data analysis in socio-economic and political systems (2020)