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.

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

The Manipulation of Basel Risk-Weights

Mike Mariathasan, Ouarda Merrouche, 26 May 2013

Vox readers can download Discussion Paper 9494 for free here.

Journalists are entitled to free DP downloads on request; please contact To learn more about subscribing to CEPR's Discussion Paper Series, please visit the CEPR website.

Topics: International finance
Tags: Basel II, capital regulation, internal ratings-based approach

The prudential treatment of trade finance under Basel III: For a fair treatment

Marc Auboin, 7 March 2010



There was a time when trade finance received favourable regulatory treatment. It was viewed as one of the safest, most collateralised, and self-liquidating forms of finance.

Topics: International trade
Tags: Basel II, global crisis, Trade finance

Mitigating the procyclical effects of bank capital regulation

Rafael Repullo, Jesús Saurina, Carlos Trucharte, 24 September 2009



The G20 April 2009 London Summit put forward recommendations “to mitigate procyclicality, including a requirement for banks to build buffers of resources in good times that they can draw down when conditions deteriorate.” Many proposals have been published since. On 3 September 2009, the US Treasury stated that the principal options were adopting either

Topics: Financial markets
Tags: bank regulation, Basel II, procyclicality

It is time for a reappraisal of the basic principles of financial regulation

Hyun Song Shin, 31 January 2009



The regulatory system stands accused of having failed to provide any check or barrier against the boom-and-bust cycle in the financial system. It was largely a bystander during the build-up of leverage and the erosion of credit standards in the credit boom and has been largely powerless as the boom has turned to bust with a devastating impact on the real economy.

Topics: Financial markets, International finance
Tags: Basel II, financial crisis, financial regulation

The procyclical effects of Basel II

Rafael Repullo, Javier Suarez, 14 July 2008



The global charter that regulates banks’ capital requirements – known as Basel II – aims to make each bank’s capital holdings proportional to its potential credit losses.1 The idea was to reduce the incentives for excessive risk-taking and the opportunities for regulatory arbitrage supposedly offered by the old regime – Basel I.

Topics: Financial markets
Tags: bank capital regulation, Basel II, Credit crunch

Filling the information gap

Alberto Giovannini, Luigi Spaventa, 5 November 2007



The mid-summer blues are not quite over yet: with subprime default rates still on the rise, 3-months interbank rates stay abnormally high, credit conditions remain tight, gross issues of mortgage-backed bonds and commercial paper are all but dried up, and banks lick their wounds and attempt to set up emergency vehicles to dispose of the backlog of illiquid assets left in their books.

Topics: Financial markets
Tags: Basel II, Subprime, subprime crisis

Vox eBooks