The Missed Opportunity and Challenge of Capital Regulation

Anat Admati

National Institute Economic Review, 2016, vol. 235, issue 1, R4-R14

Abstract: Capital regulation is critical to address distortions and externalities from intense conflicts of interest in banking and from the failure of markets to counter incentives for recklessness. The approaches to capital regulation in Basel III and related proposals are based on flawed analyses of the relevant tradeoffs. The flaws in the regulations include dangerously low equity levels, a complex and problematic system of risk weights that exacerbates systemic risk and adds distortions, and unnecessary reliance on poor equity substitutes. The underlying problem is a breakdown of governance and lack of accountability to the public throughout the system, including policymakers and economists.

Keywords: Banking regulation; capital regulations; banking; equity in banking; capital structure; leverage; agency costs; leverage ratchet effect; Basel; risk weights; TLAC (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 G38 H81 K23 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://ner.sagepub.com/content/235/1/R4.abstract (text/html)

Related works:
Working Paper: The Missed Opportunity and Challenge of Capital Regulation (2015)
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:sae:niesru:v:235:y:2016:i:1:p:r4-r14

Access Statistics for this article

More articles in National Institute Economic Review from National Institute of Economic and Social Research Contact information at EDIRC.
Bibliographic data for series maintained by SAGE Publications ().