Measures aimed at enhancing the loss absorbency of regulatory capital at the point of non viability

Marianne Ojo

MPRA Paper from University Library of Munich, Germany

Abstract: The Basel Committee’s recent consultative document on the “Proposal to Ensure the Loss Absorbency of Regulatory Capital at the Point of Non Viability” sets out a proposal aimed at “enhancing the entry criteria of regulatory capital to ensure that all regulatory capital instruments issued by banks are capable of absorbing losses in the event that a bank is unable to support itself in the private market.” As well as demonstrating its support of the Basel Committee’s statement that a public sector injection of capital should not protect investors from absorbing the loss that they would have incurred (had the public sector not chosen to rescue the bank), this paper also highlights identified measures which have been put forward as means of rescuing failing banks – without taxpayer financing. Furthermore, it highlights why the controlled winding down procedure also constitutes a means whereby losses could still be absorbed in the event that a bank is unable to support itself in the private market.

Keywords: capital; insolvency; financial crises; moral hazard; Basel III; Investor Compensation Schemes Directive; bail outs; equity; liquidity (search for similar items in EconPapers)
JEL-codes: D53 E58 G01 K2 (search for similar items in EconPapers)
Date: 2010-09
New Economics Papers: this item is included in nep-acc, nep-ban, nep-reg and nep-rmg
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https://mpra.ub.uni-muenchen.de/24823/1/MPRA_paper_24823.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/24928/1/MPRA_paper_24928.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/70908/1/MPRA_paper_70908.pdf revised version (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:24823

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