Reconsidering Bank Capital Regulation: A New Combination of Rules, Regulators, and Market Discipline
September 15, 2014
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Summary
Despite revisions to bank capital standards, fundamental shortcomings remain: the rules for setting capital requirements need to be simpler, and resolution should be an essential part of the capital requirement framework.We propose a new system of capital regulation that addresses these needs by making changes to all three pillars of bank regulation: only common equity should be recognized as capital for regulatory purposes, and risk weighting of assets should be abandoned; capital requirements should be assigned on an institution-by-institution basis according to a regulatory (s,S) approach developed in the paper; a standard for prompt, corrective action is incorporated into the (s,S) approach.
Subject: Bank regulation, Bank resolution, Banking, Basel Core Principles, Capital adequacy requirements, Financial crises, Financial regulation and supervision
Keywords: adequacy rule, arbitrage problem, Bank Capital, bank capital rule, Bank regulation, Bank resolution, Basel Core Principles, Capital adequacy requirements, capital boundary, capital burden, capital regulation, capital requirement, capital requirement calculation, capital requirements, capital standard, conservation buffer, Global, Regulation, regulatory capital arbitrage, requirement calculation, tailoring capital requirement, WP
Pages:
36
Volume:
2014
DOI:
Issue:
169
Series:
Working Paper No. 2014/169
Stock No:
WPIEA2014169
ISBN:
9781498382472
ISSN:
1018-5941
