Bank Regulation s Capital Mistake

Smarter capital requirements better Basel rules aren t the answer.

Yes, the principle of regulating bank capital seems sensible.

Inflation targeting also means the central bank follows certain specified rules.

No amount of capital will rescue a badly run bank.

The bank has raised 102.5 billion rubles worth of additional capital.

In particular, bank assets (mainly the loans by banks) can not be more than 12.5 times the bank capital.

Prominent examples of regulations with a direct negative impact include existing rules on securitization and proposed rules on asset based capital charges.

Rules are rules.

At a time when bank capital is scarce, that impediment carries significant economic costs.

Moreover, the use of mechanistic rules to determine capital adequacy has also inadvertently encouraged systemic imprudence.

If the economy were to weaken, the need for additional bank capital could be significant.

Rules

Under international banking regulations prepared by the Bank for International Settlements (BIS), the club of central banks based in Basle, Switzerland, banks must maintain adequate bank capital.

The Agricultural Bank will also require new capital, although the government is not yet preparing it for privatization.

This is why capital account regulations are allowed under IMF rules, and why the attempt to introduce capital account convertibility into the IMF s Articles of Agreement was defeated in 1997.

Beyond capital rules, however, monetary policy and financial supervision must cooperate very closely on liquidity management, particularly through credit mechanisms.

Kremlin Rules

Mandatory rules

CSS Rules

But the cause of Russia s so called capital flight is a poor bank system and its dysfunctional tax system.

In the past, government bailouts have typically protected all contributors of capital of a rescued bank other than shareholders.

The key is to reflect on six kinds of capital goods business capital, infrastructure, human capital, intellectual capital, natural capital, and social capital.

In this way, the new Basel rules allow for requiring banks to maintain a so called countercyclical buffer of extra capital.

One model is the European Investment Bank, which, with 50 billion of capital, has been able to invest 400 billion.

The bank primarily plans to bolster its capital quota with the net profit from the sale to meet tougher regulations.

Be it because of a sovereign default or because of large losses accumulated under complacent accounting rules, the insolvency of a large bank (particularly a European bank) is far from a remote possibility.

Again, simplicity rules.

Remember these rules.

Remember these rules.

We need rules.

We have rules.

I hate rules.

There are rules.

There are rules.

She hates rules.

Tom hates rules.

Follow the rules.

Follow the rules.

We can work within the rules we can't break the rules we're just learning what the rules are.

The idea that a big government guaranteed global bank is needed to fill holes in private capital markets is laughable nowadays.

The Lehman Brothers bankruptcy created an extraordinary and immediate demand for additional bank capital, which the private sector could not supply.

The idea that a big government guaranteed global bank is needed to fill holes in private capital markets is laughable nowadays.

First, sovereign bonds held by banks are treated as risk free assets under EU rules for calculating banks solvency and capital adequacy levels.

Merkel argues that it is against the rules to use the European Central Bank to solve eurozone countries fiscal problems and she is right.