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
