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.
Are banks too large?
Lev Ratnovski, Luc Laeven, Hui Tong, 31 May 2014
Estimating the impact of changes in aggregate bank capital requirements during an upswing
Joseph Noss, Priscilla Toffano, 6 April 2014
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.
Bank capital requirements: Risk weights you cannot trust and the implications for Basel III
Jens Hagendorff, Francesco Vallascas, 16 December 2013
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.
The new market-risk regulations
Jon Danielsson, 28 November 2013
The final shape of the Basel III proposals is increasingly becoming clear, (see Basel Committee 2012, 2013). While the proposals are generally quite technical, the fundamental elements of the market-risk proposals are simple and easily evaluated, providing means to evaluate the quality of the overall proposal.
The impact of liquidity regulation on monetary-policy implementation
Clemens Bonner, Sylvester Eijffinger, 14 October 2013
In response to the recent financial crisis, the Basel Committee on Banking Supervision has drafted a new regulatory framework (henceforth Basel III) with the aim to achieve a more robust banking system. While it also tightens the existing requirements for capital, the proposal stands out as it is the first to attempt harmonised liquidity regulation across the globe.
How much capital should banks have?
Lev Ratnovski, 28 July 2013
There is an active debate on how much capital banks should have. Yet establishing an 'optimal' level of bank capital is more art than science. Any conclusion is model-specific and contains a degree of judgement. The purpose of this column is to contribute to the debate by offering one more benchmark.
Capital adequacy and hidden risk
Mike Mariathasan, Ouarda Merrouche, 29 June 2013
The regulation of bank capital has recently come under renewed scrutiny. While some commentators argue for higher requirements (e.g. Admati and Hellwig 2012), others – and the banking industry in particular – are quoting the risk of reduced credit and the corresponding costs for the economy.
A viable alternative to Basel III prudential rules
Stefano Micossi, 9 June 2013
There is something surreal in the process for the implementation of the new Basel capital framework for banks in the EU and US. The new rules, known as Basel III, have the full support of financial officialdom (see BCBS 2013b for the latest official update by Basel Supervisors). Implementation is a different story.
Basel III: Europe’s interest is to comply
Nicolas Véron, 5 March 2013
On 14 February, European Commissioner Michel Barnier and Federal Reserve Governor Daniel Tarullo both indicated their agreement to quickly give the Basel III accord binding force over European and US banks respectively (Jones 2013). This is welcome. But even more important than the speed of adoption is that implementation should stay true to what the accord stipulates.
Basel liquidity rules and their impact on the interbank money market
Clemens Bonner, Sylvester Eijffinger, 13 October 2012
Before the financial crisis in 2008, asset markets were liquid and funding was easily available at low cost.
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