## Possible Unintended Consequences of Basel III and Solvency II

_IMF Working Papers, August 1, 2011_

## Source details

**Canonical URL:** [Possible Unintended Consequences of Basel III and Solvency II](https://www.imf.org/en/publications/wp/issues/2016/12/31/possible-unintended-consequences-of-basel-iii-and-solvency-ii-25149)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/31/possible-unintended-consequences-of-basel-iii-and-solvency-ii-25149/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/31/possible-unintended-consequences-of-basel-iii-and-solvency-ii-25149/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/31/possible-unintended-consequences-of-basel-iii-and-solvency-ii-25149/bundle-manifest.json)

## Bibliographic details
- Published: August 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781462308279.001

---

### Summary
- In today's financial system, complex financial institutions are connected through an opaque network of financial exposures.
- These connections contribute to financial deepening and greater savings allocation efficiency, but are also unstable channels of contagion.
- Basel III and Solvency II should improve the stability of these connections, but could have unintended consequences for cost of capital, funding patterns, interconnectedness, and risk migration.

### Key findings and analytical themes
- Network of exposures: Complex financial institutions are linked by an opaque network that enhances allocation efficiency but creates contagion channels.
- Regulatory intent: Basel III and Solvency II aim to improve stability of interconnections among financial institutions.
- Potential unintended consequences identified:
  - Cost of capital: Regulations may affect the cost of capital for regulated entities.
  - Funding patterns: Changes in regulatory requirements could alter funding behavior.
  - Interconnectedness: Regulatory reform could shift patterns of interconnectedness across institutions and markets.
  - Risk migration: Risks may migrate across sectors or instruments in response to regulatory changes.

### Subjects and keywords (as stated in the source)
- Subjects: Banking; Basel III; Financial institutions; Financial regulation and supervision; Financial sector policy and analysis; Financial statements; Insurance; Insurance companies; Public financial management (PFM); Solvency
- Keywords: bail-in capital proposal; balance sheet; bank assets; Basel III; capital requirement; conservation buffer; Cost of Capital; credit risk; equity capital; Europe; fair value; Financial statements; Funding; Global; holding company; Insurance; Insurance companies; Interconnectedness; preference shares; Solvency; Solvency II; unsecured debt; WP

---

## Content in this bundle

- **_wp11187**
  - [_wp11187 (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp11187.pdf.md){rel="alternate" type="text/markdown"}
  - [_wp11187 (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2011/_wp11187.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/possible-unintended-consequences-of-basel-iii-and-solvency-ii-25149_