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Keep the Leverage Ratio for Large Banks to Limit the Competititive Effects of Implementing Basel II Captial Requirements

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  • R. Alton Gilbert

Abstract

In October 2005, the agencies that supervise U.S. depository institutions proposed changes in the Basel I capital requirements that will apply to the banks that will not be subject to the new Basel II capital requirements. An objective of the U.S. bank supervisors for proposing changes in Basel I capital requirements is to mitigate any competitive inequalities created by implementing Basel II capital requirements. This paper explains why the proposed changes in Basel I capital requirements would not mitigate such competitive inequalities for many of the banks that will continue to be subject to the Basel I capital requirements. In addition, this paper argues that an important means of limiting competitive effects from implementing Basel II capital requirements is to maintain the leverage ratio as one of the capital requirements for the banks that adopt Basel II capital requirements.

Suggested Citation

  • R. Alton Gilbert, 2006. "Keep the Leverage Ratio for Large Banks to Limit the Competititive Effects of Implementing Basel II Captial Requirements," NFI Policy Briefs 2006-PB-01, Indiana State University, Scott College of Business, Networks Financial Institute.
    • Handle: RePEc:nfi:nfipbs:2006-pb-01
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    File URL: http://www.indstate.edu/business/sites/business.indstate.edu/files/Docs/2006-PB-01_Gilbert.pdf
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    References listed on IDEAS

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    1. Diana Hancock & Andreas Lehnert & Wayne Passmore & Shane M. Sherlund, 2005. "An analysis of the potential competitive impacts of Basel II capital standards on U.S. mortgage rates and mortgage securitization," Basel II White Paper 3, Board of Governors of the Federal Reserve System (U.S.).
    2. Kenneth Spong, 2000. "Banking regulation : its purposes, implementation, and effects," Monograph, Federal Reserve Bank of Kansas City, number 2000bria.
    3. William R. Emmons & Vahe Lskavyan & Timothy J. Yeager, 2005. "Basel II will trickle down to community bankers, consumers," The Regional Economist, Federal Reserve Bank of St. Louis, issue Apr, pages 12-13.
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    Cited by:

    1. Cathcart, Lara & El-Jahel, Lina & Jabbour, Ravel, 2015. "Can regulators allow banks to set their own capital ratios?," Journal of Banking & Finance, Elsevier, vol. 53(C), pages 112-123.
    2. Dorina Clichici & Victoria Iordachi, 2017. "Volatility of Cross-Border Financial Flows and Policy Responses," Global Economic Observer, "Nicolae Titulescu" University of Bucharest, Faculty of Economic Sciences;Institute for World Economy of the Romanian Academy, vol. 5(1), June.

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