Reconsidering Bank Capital Regulation: A New Combination of Rules, Regulators, and Market Discipline

September 15, 2014

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Format: Chicago

Connel Fullenkamp, and Celine Rochon. Reconsidering Bank Capital Regulation: A New Combination of Rules, Regulators, and Market Discipline, (USA: International Monetary Fund, 2014) accessed November 21, 2024

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

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

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/169
Stock No:

WPIEA2014169
ISBN:

9781498382472
ISSN:

1018-5941

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