IDEAS home Printed from https://ideas.repec.org/p/zbw/eabhps/1404.html
   My bibliography  Save this paper

Financial market regulation in Germany under the special focus of capital requirements of financial institutions

Author

Listed:
  • Detzer, Daniel

Abstract

This paper examines capital adequacy regulation in Germany. After a short overview about financial regulation in Germany in general, the paper focuses on the most important development in the area of capital adequacy regulation from the 1930s up to the financial crisis. Two main trends are identified: a gradual softening of the eligibility criteria for regulatory equity and the increasing reliance on banks' internal risk models for the determination of risk weights. The first trend has been reversed with the regulatory reforms following the financial crisis. Internal risk models will still play a central role. The rest of the paper focuses on the problems with the use of internal risk models for regulatory purposes. The discussion includes the moral hazard problem, the technical problems with the models, the difference between economically and socially optimal capital requirements, the pro-cyclicality of the models and the problem occurring due to the existence of fundamental uncertainty. The regulatory reforms due to Basel 2.5 and Basel III and their potential to alleviate the identified problems are then examined. It is concluded that those cannot solve the most relevant problems and that currently the use of models for financial regulation is problematic. Finally, some suggestions of how the problems could be addressed are given.

Suggested Citation

  • Detzer, Daniel, 2014. "Financial market regulation in Germany under the special focus of capital requirements of financial institutions," eabh Papers 14-04, The European Association for Banking and Financial History (EABH).
  • Handle: RePEc:zbw:eabhps:1404
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/93733/1/781078091.pdf
    Download Restriction: no

    More about this item

    Keywords

    Banking Regulation; Financial Regulation; Capital Requirements; Capital Adequacy; Bank Capital; Basel Accord; Risk Management; Risk Models; Germany;

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-
    • N44 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: 1913-

    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:zbw:eabhps:1404. 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: (ZBW - German National Library of Economics). General contact details of provider: http://edirc.repec.org/data/eabhhea.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.

    We have no references for this item. You can help adding them by using 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.