IDEAS home Printed from https://ideas.repec.org/p/eps/cepswp/8075.html
   My bibliography  Save this paper

A Viable Alternative to Basel III Prudential Capital Rules

Author

Listed:
  • Micossi,Stefano

Abstract

Stefano Micossi argues in this paper that the Basel framework for bank prudential requirements is deeply flawed and that the Basel III revision has failed to correct these flaws, making the system even more complicated, opaque and open to manipulation. In practice, he finds that the present system does not offer regulators and financial markets a reliable capital standard for banks and its divergent implementation in the main jurisdictions of the European Union and the United States has broken the market into special fiefdoms governed by national regulators in response to untoward special interests. The time is ripe to stop tinkering with minor adjustment and revisions in order to rescue the system, because the system cannot be rescued. In response to the current situation, Micossi calls for abandoning reference to risk-weighted assets calculated by banks with their internal risk management models for the determination of banks’ prudential capital, together with the preoccupation with the asset side of banks in correcting for risk exposure. He suggests that the alternative may be provided by a combination of a straight capital ratio and a properly designed deposit insurance system. It is a logical, complete and much less distortive alternative; it would serve better the cause of financial stability as well as the interest of the banks in clear, transparent and level playing field.

Suggested Citation

  • Micossi,Stefano, 2013. "A Viable Alternative to Basel III Prudential Capital Rules," CEPS Papers 8075, Centre for European Policy Studies.
  • Handle: RePEc:eps:cepswp:8075
    as

    Download full text from publisher

    File URL: http://www.ceps.eu/system/files/PB291%20SM%20Bank%20Capital%20Rules_0.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Carmassi, Jacopo & Micossi, Stefano, 2012. "Time to Set Banking Regulation Right," CEPS Papers 6734, Centre for European Policy Studies.
    2. Martin Hellwig, 2010. "Capital Regulation after the Crisis: Business as Usual?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 8(2), pages 40-46, July.
    3. Goodhart, Charles, 2013. "Ratio controls need reconsideration," Journal of Financial Stability, Elsevier, vol. 9(3), pages 445-450.
    4. Jacopo Carmassi & Stefano Micossi, 2012. "Time to Set Banking Regulation Right," FMG Special Papers sp206, Financial Markets Group.
    5. Martin Hellwig, 2010. "Capital Regulation after the Crisis: Business as Usual?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 8(2), pages 40-46, 07.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eps:cepswp:8075. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Margarita Minkova). General contact details of provider: http://edirc.repec.org/data/cepssbe.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.