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A Review of the Regulatory Impact Analysis of Risk-Based Capital and Related Liquidity Rules

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  • Thomas L. Hogan

    (American Institute for Economic Research, Great Barrington, MA 01230, USA
    For helpful comments and suggestions, the author thanks Stephen Miller, three anonymous reviewers, and session participants at the AIER Sound Money Project annual meeting. The author thanks David Schatz and Justin Wang for editing assistance.)

Abstract

This paper reviews the cost-benefit analysis, or “regulatory impact analysis” (RIA), in US bank regulators’ risk-based capital (RBC) rule proposals. We review the principles of cost-benefit analysis and its application by US bank regulators. We provide a brief background on RBC rules and review the literature on their costs and benefits. We then evaluate 27 proposed RBC rules and related rules on bank liquidity. We find that nine of the 27 rules include RIAs. Five of the RIAs claim the proposed rule will create net benefits, but none provide quantitative evidence that the benefits exceed the costs. In two proposals, the evidence cited indicates the rules’ net benefits may actually be negative.

Suggested Citation

  • Thomas L. Hogan, 2021. "A Review of the Regulatory Impact Analysis of Risk-Based Capital and Related Liquidity Rules," JRFM, MDPI, vol. 14(1), pages 1-29, January.
  • Handle: RePEc:gam:jjrfmx:v:14:y:2021:i:1:p:24-:d:475770
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    References listed on IDEAS

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    18. Thomas L. Hogan & G. P. Manish, 2016. "Banking Regulation and Knowledge Problems," Advances in Austrian Economics, in: Steven Horwitz (ed.), Studies in Austrian Macroeconomics, volume 20, pages 213-234, Emerald Publishing Ltd.
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    26. VanHoose, David, 2007. "Theories of bank behavior under capital regulation," Journal of Banking & Finance, Elsevier, vol. 31(12), pages 3680-3697, December.
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    Cited by:

    1. Peter Zweifel, 2021. "Solvency Regulation—An Assessment of Basel III for Banks and of Planned Solvency III for Insurers," JRFM, MDPI, vol. 14(6), pages 1-22, June.

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