Possible Unintended Consequences of Basel III and Solvency II

August 1, 2011

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Subject: 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

Pages:
70
Volume:
2011
DOI:
https://doi.org/10.5089/9781462308279.001
Issue:
187
Series:
Working Paper No. 2011/187
Stock No:
WPIEA2011187
ISBN:
9781462308279
ISSN:
1018-5941

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