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What Happens When Regulatory Capital Is Marked to Market?

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Abstract

Minimum equity capital requirements are a key part of bank regulation. But there is little agreement about the right way to measure regulatory capital. One of the key debates is the extent to which capital ratios should be based on current market values rather than historical ?accrual? values of assets and liabilities. In a new research paper, we investigate the effects of a recent regulatory change that ties regulatory capital directly to the market value of the securities portfolio for some banks.

Suggested Citation

  • Andreas Fuster & James Vickery, 2018. "What Happens When Regulatory Capital Is Marked to Market?," Liberty Street Economics 20181011, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:87285
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    File URL: https://libertystreeteconomics.newyorkfed.org/2018/10/what-happens-when-regulatory-capital-is-marked-to-market.html
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    More about this item

    Keywords

    held to maturity; bank capital; regulation; securities; available for sale; risk; fair value accounting;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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