Bank capital regulation in contemporary banking theory: a review of the literature
This paper reviews the theoretical literature on bank capital regulation and analyses some of the approaches to redesigning the 1988 Basle Accord on capital standards. The paper starts with a review of the literature on the design of the financial system and the existence of banks. It proceeds with a presentation of the market failures that justify banking regulation and an analysis of the mechanisms that have been suggested to deal with these failures. The paper then reviews the theoretical literature on bank capital regulation. This is followed by a brief history of capital regulation since the 1988 Basle Capital Accord and a presentation of both the alternative approaches that have been put forward on setting capital standards and the Basel Committee's proposal for a new capital adequacy framework.
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- Xavier Freixas & Emmanuelle Gabillon, 1996.
"Optimal regulation of a fully insured deposit banking system,"
Economics Working Papers
175, Department of Economics and Business, Universitat Pompeu Fabra.
- Freixas, Xavier & Gabillon, Emmanuelle, 1999. "Optimal Regulation of a Fully Insured Deposit Banking System," Journal of Regulatory Economics, Springer, vol. 16(2), pages 111-34, September.
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- Edward S. Prescott, 1997. "The pre-commitment approach in a model of regulatory banking capital," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 23-50.
- Campbell, Tim S. & Chan, Yuk-Shee & Marino, Anthony M., 1992.
"An incentive-based theory of bank regulation,"
Journal of Financial Intermediation,
Elsevier, vol. 2(3), pages 255-276, September.
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