Reconsidering Bank Capital Regulation: A New Combination of Rules, Regulators, and Market Discipline

37 Pages Posted: 9 Oct 2014

See all articles by Céline Rochon

Céline Rochon

International Monetary Fund (IMF)

Date Written: September 2014

Abstract

Despite revisions to bank capital standards, fundamental shortcomings remain: the rules for setting capital requirements need to be simpler, and resolution should be an essential part of the capital requirement framework.We propose a new system of capital regulation that addresses these needs by making changes to all three pillars of bank regulation: only common equity should be recognized as capital for regulatory purposes, and risk weighting of assets should be abandoned; capital requirements should be assigned on an institution-by-institution basis according to a regulatory (s,S) approach developed in the paper; a standard for prompt, corrective action is incorporated into the (s,S) approach.

Keywords: Bank capital, Capital regulation, Capital requirements, Bank regulations, Bank supervision, Banking systems, Regulation, Bank Capital., bank capital regulation, banking, capital adequacy, bank regulation, capital requirement, bank supervisors, bank of england, bankers, recapitalization, subordinated debt, bank regulators, banking system, banking union, retained earnings, tier 2 capital, bank activities, bank compliance, financial strength, banking supervision, banking regulations, tier 1 capital, banking operations, bank holding, banking industry, bank recapitalization, bank insolvency, bank liquidity, bank client, bank supervisor, bank solvency, restrictions on bank, bank failures, bank cap

JEL Classification: G18, G21, G28

Suggested Citation

Rochon, Céline, Reconsidering Bank Capital Regulation: A New Combination of Rules, Regulators, and Market Discipline (September 2014). IMF Working Paper No. 14/169, Available at SSRN: https://ssrn.com/abstract=2507681

Céline Rochon

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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