Reconsidering Bank Capital Regulation: A New Combination of Rules, Regulators, and Market Discipline

Connel Fullenkamp and Celine Rochon

No 2014/169, IMF Working Papers from International Monetary Fund

Abstract: Despite revisions to bank capital standards, fundamental shortcomings remain: the rules for setting capital requirements need to be simpler, and resolution should be an essential part of the capital requirement framework.We propose a new system of capital regulation that addresses these needs by making changes to all three pillars of bank regulation: only common equity should be recognized as capital for regulatory purposes, and risk weighting of assets should be abandoned; capital requirements should be assigned on an institution-by-institution basis according to a regulatory (s,S) approach developed in the paper; a standard for prompt, corrective action is incorporated into the (s,S) approach.

Keywords: WP; capital requirement; capital regulation; adequacy rule; capital standard; conservation buffer; Regulation; Bank Capital; capital boundary; arbitrage problem; requirement calculation; capital requirement calculation; bank capital rule; regulatory capital arbitrage; capital burden; capital requirements; tailoring capital requirement; Capital adequacy requirements; Bank regulation; Bank resolution; Basel Core Principles; Global (search for similar items in EconPapers)
Pages: 36
Date: 2014-09-15
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Citations: View citations in EconPapers (1)

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