This article empirically investigates whether the risk weights assigned according to the risk-based capital standards can be justified across sample banks in Taiwan and the stability of this risk relation over time. A market beta approach is adopted to construct the empirical model for the relation between bank risk and the asset categories to estimate the relative risk weights. Our empirical results do not support for the relative ranking of assigned risk weights. However, we cannot reject the stability of the relationship between bank risk and asset categories over the sample years.
Proceedings of 1996 APFA/PACAP Finance Conference CFA Annual Meetings Volume II, pp.1-12