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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