Capital Regulation after the Crisis: Business as Usual?
AbstractThe paper discusses the reform of capital regulation of banks in the wake of the financial crisis of 2007/2009. Whereas the Basel Committee on Banking Supervision seems to go for marginal changes here and there, the paper calls for a thorough overhaul, moving away from risk calibration and raising capital requirements very substantially. The argument is based on the observation that the current system of risk- calibrated capital requirements, in particular under the modelbased approach, played a key role in allowing banks to be undercapitalized prior to the crisis, with strong systemic effects for deleveraging multipliers and for the functioning of interbank markets. The argument is also based on the observation that the current system has no theoretical foundation, its objectives are ill-specified, and its effects have not been thought through, either for the individual bank or for the system as a whole. Objections to substantial increases in capital requirements rest on arguments that run counter to economic logic or are themselves evidence of moral hazard and a need for regulation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Ifo Institute for Economic Research at the University of Munich in its journal DICE.
Volume (Year): 8 (2010)
Issue (Month): 2 (07)
Other versions of this item:
- Martin Hellwig, 2010. "Capital Regulation after the Crisis: Business as Usual?," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2010_31, Max Planck Institute for Research on Collective Goods.
- Hellwig, Martin, 2010. "Capital Regulation after the Crisis: Business as Usual?," Working paper 633, Regulation2point0.
- G01 - Financial Economics - - General - - - Financial Crises
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Martin Hellwig & Markus Straub, 1996. "Capital Requirements for Market Risks Based on Inhouse Models - Aspects of Quality Assessment," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 132(IV), pages 755-776, December.
- Martin Hellwig, 1995. "Systemic Aspects of Risk Management in Banking and Finance," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 131(IV), pages 723-737, December.
- Blum, Jurg, 1999. "Do capital adequacy requirements reduce risks in banking?," Journal of Banking & Finance, Elsevier, vol. 23(5), pages 755-771, May.
- Martin Hellwig, 1996. "Capital Adequacy Rules as Instruments for the Regulation of Banks," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 132(IV), pages 609-612, December.
- Martin Hellwig, 2008.
"Systemic Risk in the Financial Sector: An Analysis of the Subprime-Mortgage Financial Crisis,"
Working Paper Series of the Max Planck Institute for Research on Collective Goods
2008_43, Max Planck Institute for Research on Collective Goods.
- Martin Hellwig, 2009. "Systemic Risk in the Financial Sector: An Analysis of the Subprime-Mortgage Financial Crisis," De Economist, Springer, vol. 157(2), pages 129-207, June.
- Giancarlo Corsetti & Michael P. Devereux & John Hassler & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2011. "Chapter 5: Taxation and Regulation of the Financial Sector," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 147-169, 02.
- Andrea Teglio & Marco Raberto & Silvano Cincotti, 2011.
"The impact of banks’ capital adequacy regulation on the economic system: an agent-based approach,"
2011/01, Economics Department, Universitat Jaume I, Castellón (Spain).
- Andrea Teglio & Marco Raberto & Silvano Cincotti, 2012. "The Impact Of Banks' Capital Adequacy Regulation On The Economic System: An Agent-Based Approach," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 15(su), pages 1250040-1-1.
- Eichberger, Jürgen & Rheinberger, Klaus & Summer, Martin, 2012.
"Credit risk in general equilibrium,"
Working Paper Series
1445, European Central Bank.
- Michal Kowalik, 2011. "Countercyclical capital regulation: should bank regulators use rules or discretion?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II.
- Hartmann-Wendels, Thomas, 2012. "Regulatorische Folgen der Finanzkrisen: Auswirkungen auf die Leasing-Branche," Leasing - Wissenschaft & Praxis, Universität zu Köln, Forschungsinstitut für Leasing, vol. 10(1), pages 3-88.
- Micossi,Stefano, 2013. "A Viable Alternative to Basel III Prudential Capital Rules," CEPS Papers 8075, Centre for European Policy Studies.
- Mario Tonveronachi & Elisabetta Montanaro, 2012. "Financial re-regulation at a crossroads: How the European experience strengthens the case for a radical reform built on Minsky’s approach," PSL Quarterly Review, Economia civile, vol. 65(263), pages 335-383.
- Jokivuolle, Esa & Kiema, Ilkka & Vesala, Timo, 2010. "Credit allocation, capital requirements and output," Research Discussion Papers 17/2010, Bank of Finland.
- Vallascas, Francesco & Keasey, Kevin, 2012. "Bank resilience to systemic shocks and the stability of banking systems: Small is beautiful," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1745-1776.
- Jimenez Porras, G. & Ongena, S. & Peydro, J.L. & Saurina, J., 2012. "Credit Supply versus Demand: Bank and Firm Balance-Sheet Channels in Good and Crisis Times," Discussion Paper 2012-005, Tilburg University, Center for Economic Research.
- Markose, Sheri & Giansante, Simone & Shaghaghi, Ali Rais, 2012. "‘Too interconnected to fail’ financial network of US CDS market: Topological fragility and systemic risk," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 627-646.
- Colignatus, Thomas, 2011. "The crisis and the raison d’être and prospect for the UK office for budget responsibility versus an economic supreme Court," MPRA Paper 27873, University Library of Munich, Germany, revised 19 May 2010.
- Carlo D'Ippoliti, 2012. "Josef Steindl: Introduzione: sulle cause reali della crisi finanziaria (Introduction: on the real causes of the financial crisis)," Moneta e Credito, Economia civile, vol. 65(260), pages 279-292.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Klaus Wohlrabe).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.