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New bank equity capital rules in the European Union: A critical evaluation

Thomas Schuster, Felix Kövener and Jürgen Matthes

No 6/2013, IW policy papers from Institut der deutschen Wirtschaft (IW) / German Economic Institute

Abstract: This paper presents and critically evaluates the bank capital requirement rules proposed by the European Union - the capital requirements directive CRD IV and the capital requirements regulation CRR. First, the rules of the Basel III accord about equity capital standards of banks are briefly described. Second, the EU proposal based on Basel III is presented. The article differentiates between rules fully in line with Basel III, modified rules, and new rules not covered by Basel III. Third, the EU proposals are critically evaluated. The paper concludes that the proposals lead in the right direction, but there is still much room for improvement. In fact, some of the planned rules should be urgently revised. Above all, risk weights for member state government bonds must be introduced, liquidity requirements should not overly favour government bonds, and member states should be able to set capital requirements which are greater than 18% of risk-weighted assets.

Keywords: Banken und Versicherungen; Europäische Währungsunion; Finanzmärkte; Finanzmarktregulierung (search for similar items in EconPapers)
JEL-codes: G21 G18 G32 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwkpps:62013

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