Banking has a unique role in the well-being of an economy. This role makes banks
one of the most heavily regulated and supervised industries. In order to strengthen
the soundness and stability of banking systems, regulators require banks to hold
adequate capital. While credit risk was the only risk that was covered by the original
Basle Accord, with the 1996 amendment, banks have also been required to assign
capital for their market risk starting from 1998.
In this research, the impact of the market risk capital regulations on bank capital
levels and derivative activities is investigated.