Are banks too large?

Lev Ratnovski, Luc Laeven, Hui Tong, 31 May 2014

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Large banks have grown significantly in size and become more involved in market-based activities since the late 1990s. Figure 1 shows how the balance-sheet size of the world’s largest banks increased two- to four-fold in the ten years prior to the crisis. Figure 2 illustrates how banks shifted from traditional lending towards market-oriented activities.

Topics: Financial markets
Tags: bank capital, bank regulation, bank resolution, banking, BASEL III, economies of scale, regulation, systemic risk, Too big to fail

How to loosen the banks-sovereign nexus

Paolo Angelini, Giuseppe Grande, 8 April 2014

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Sovereign debtors and their national banking systems are closely linked through a range of direct and indirect channels.

Topics: EU institutions, Financial markets
Tags: bank capital, bank regulation, capital requirements, home bias

Estimating the impact of changes in aggregate bank capital requirements during an upswing

Joseph Noss, Priscilla Toffano, 6 April 2014

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The recent financial crisis and economic contraction that followed highlighted the crucial role that banks play in facilitating the extension of credit and enabling economic growth. This underlies the economic rationale for imposing regulations on the banking industry, including minimum capital requirements designed to mitigate risks banks would not otherwise account for in their behaviour.

Topics: Financial markets
Tags: bank capital, bank regulation, banking, banks, BASEL III, capital requirements, credit, Macroprudential policy, regulations

The puzzling pervasiveness of dysfunctional banking

Charles W Calomiris interviewed by Romesh Vaitilingam, 21 Mar 2014

Charles Calomiris talks to Romesh Vaitilingam about his recent book, co-authored with Stephen Haber, ‘Fragile by Design: The Political Origins of Banking Crises and Scarce Credit’. They discuss how politics inevitably intrudes into bank regulation and why banking systems are unstable in some countries but not in others. Calomiris also presents his analysis of the political and banking history of the UK and how the well-being of banking systems depends on complex bargains and coalitions between politicians, bankers and other stakeholders. The interview was recorded in London in February 2014.

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See Also

Calomiris, C W and S H Haber (2014), Fragile by Design: The Political Origins of Banking Crises and Scarce Credit, Princeton University Press.

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Topics: Financial markets
Tags: bank capital, Bank credit, banking, banks, credit booms, Eurozone crisis, recapitalisation, systemic risk

The AQR and stress testing the European banking system

Viral Acharya interviewed by Viv Davies, 14 Mar 2014

Viral Acharya talks to Viv Davies about his recent work with Sascha Steffen that, using publicly available data and a series of shortfall measures, estimates the capital shortfalls of EZ banks that will be stress-tested under the proposed Asset Quality Review. They also discuss the difference in accounting rules between US and EZ banks and the future potential for banking union in the Eurozone. The interview was recorded by phone on 25 February 2014.

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See Also

Acharya, V and S Steffen (2014) "Falling short of expectations? Stress-testing the European banking system", VoxEU.org, 17 January.

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Topics: Financial markets
Tags: Asset Quality Review, bank capital, banking, banking union, banks, Eurozone crisis, recapitalisation, stress testing, systemic risk

Falling short of expectations? Stress-testing the European banking system

Viral Acharya, Sascha Steffen, 17 January 2014

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The Eurozone is mired in a recession. In 2013, the GDP of the 17 Eurozone countries fell by an average of 0.5%, and the outlook for 2014 shows considerable risks across the region. To stabilise the common currency area and its (partly insolvent) financial system, a Eurozone banking union is being established.

Topics: Financial markets
Tags: Asset Quality Review, bank capital, banking, banking union, banks, Eurozone crisis, recapitalisation, stress testing, systemic risk

Bank capital requirements: Risk weights you cannot trust and the implications for Basel III

Jens Hagendorff, Francesco Vallascas, 16 December 2013

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One of the primary purposes of bank capital is to absorb losses. Where bank capital holdings are insufficient to absorb losses, banks will either fail or – if bank failure is deemed too costly for the economy – be bailed out. In practice, banks frequently receive public funds where capital holdings are insufficient to cover losses in order to prevent bank failure.

Topics: Financial markets, Microeconomic regulation
Tags: bank capital, Basel, Basel II, BASEL III, capital adequacy, capital requirements, financial crisis, risk weighting

Is a 25% bank equity requirement really a no-brainer?

Charles W Calomiris, 28 November 2013

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Professor Allan Meltzer famously quipped that “capitalism without failure is like religion without sin”. If some firms are protected from failure when they cannot pay their bills, then competition is skewed to favour inefficient, protected firms.

Topics: Financial markets, Microeconomic regulation
Tags: bank capital, bank equity, banking, capital requirements, equity requirements, loan supply, risk weighting

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