'Enforced Indebtedness' and Capital Adequacy Requirements

Jan Toporowski

Economics Policy Note Archive from Levy Economics Institute

Abstract: The capital adequacy requirements for banks, enshrined in international banking regulations, are based on a fallacy of composition--namely, the notion that an individual firm can choose the structure of its financial liabilities without affecting the financial liabilities of other firms. In practice, says author Jan Toporowski, capital adequacy regulations for banks are a way of forcing nonfinancial companies into debt. "Enforced indebtedness" then reduces the quality of credit in the economy. In an international context, the present system of capital adequacy regulation reinforces this indebtedness. Proposals for "dynamic provisioning" to increase capital requirements during an economic boom would simply accelerate the boom's collapse. Contingent commitments to lend to governments in the event of private-sector lending withdrawals, alongside lending to foreign private-sector borrowers, are a much more viable alternative.

Date: 2009-05
New Economics Papers: this item is included in nep-acc, nep-ban, nep-pke and nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.levyinstitute.org/pubs/pn_09_07.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.levyinstitute.org/pubs/pn_09_07.pdf [301 Moved Permanently]--> https://levyweb.bard.edu/pubs/pn_09_07.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lev:levypn:09-7

Access Statistics for this paper

More papers in Economics Policy Note Archive from Levy Economics Institute
Bibliographic data for series maintained by Elizabeth Dunn ( this e-mail address is bad, please contact ).