The regulation of bank capital has recently come under renewed scrutiny. This column argues that the way we implement capital regulation needs to be reconsidered because banks under-report risk, thereby escaping government intervention and maintaining market access. One possible way forward, something already implemented under Basel III, is to ask banks to satisfy a capital requirement relative to total (rather than risk-weighted) assets. Overall, simple, transparent, workable rules are what we should be aiming for.VOX.eu
Capital adequacy and hidden risk
Mike Mariathasan, Postdoctoral Research Fellow, University of Oxford, and Ouarda Merrouche, Senior Economist, ESMA; and External Advisor, World Bank
1 comment:
With common stock as private money there is no reserve or capital requirement, nor is deposit insurance required, nor is a legal tender lender of last resort required. But that's because common stock as money is inherently honest.
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