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. Whether or not bank capital holdings are sufficient and in line with the risk of bank portfolios is therefore an important question that is hotly debated among policymakers and in the press.

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Topics:  Financial markets Microeconomic regulation

Tags:  Basel II, financial crisis, capital requirements, BASEL III, Basel, bank capital, risk weighting, capital adequacy

New challenges for bank competition policy

Lev Ratnovski 02 June 2013

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Bank competition policy has been a focus of much research and policy debate. The reason for this is the special nature of banks. In the non-financial sector, competition policy mainly focuses on efficiency (competitive pricing). Yet for banks there is another relevant dimension: systemic risk. When the degree of competition adversely affects banks’ risk-taking incentives, bank competition policy should have a macroprudential component.

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Topics:  Competition policy Global crisis International finance

Tags:  banking, banks, Competition policy, Basel

Implementation of Basel III in the US will bring back the regulatory arbitrage problems under Basel I

Takeo Hoshi 23 December 2012

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This column is a lead commentary in the VoxEU Debate "Banking reform: Do we know what has to be done?"

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Topics:  International finance

Tags:  regulation, banks, Basel, Dodd-Frank, Finance

Systemic liquidity risk: A European approach

Enrico Perotti 25 October 2011

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The repeated bursts of financial distress in Europe in 2010-11 reflect vulnerabilities built up in the previous decade and are germane to the roots of the credit crisis.

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Topics:  Financial markets International finance

Tags:  liquidity risk, Basel, hot money

The Empire strikes back

Avinash Persaud 14 September 2010

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There are two remarkable aspects of the consensus around international financial regulation emerging in the run up to the November G20 meeting in Seoul. The first is that there is a consensus. International regulators are agreed that banks must set aside much more capital for risky assets; be less dependent on the whims of money markets; constrain the maturity mismatches between their assets and liabilities and set aside capital for holding complex derivatives where there may be settlement and clearing risks.

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Topics:  Global crisis International finance

Tags:  financial regulation, global crisis, banking, Basel

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