Saturday, June 29, 2013

Mike Mariathasan and Ouarda Merrouche — Capital adequacy and hidden risk

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.
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:

Anonymous said...

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.