Category Archives: Capital

Regulators Should be More Prescriptive About the Quantification of Cyber Risks

By | September 5, 2019

Courtesy of Mete Feridun* Although operational risk capital requirements drive a substantial proportion of banks’ capital requirements, quantification of cyber incidents still represent a relative “backwater” of the ever-evolving global regulatory framework. Surprisingly, the new “Basel IV” operational risk framework does not include any specific reference to cyber risks. While regulators expect firms to integrate… Read More »

Macroprudential Policy with Capital Buffers

By | July 30, 2019

Courtesy of Josef Schroth The Global Financial Crisis exposed taxpayers to potential losses from bank failures and significantly disrupted financial intermediation. A natural question arises from these experiences: Should regulators require banks to hold more capital and, if so, in what form? Higher minimum requirements reduce losses to stakeholders in case of bank failures but may constrain… Read More »

Fostering Financial Stability with Reverse Convertible Bonds

By | October 24, 2018

Courtesy of Pierre Chaigneau Most financial crises are characterized by a widespread loss of confidence in financial institutions. Charles Kindleberger famously made this point in 1978 in his book “Manias, Panics, and Crashes: A History of Financial Crises.” The mechanisms described in this book remain highly relevant to understand the financial crisis of 2007-2008. In the… Read More »

Abolishing Deposit Insurance: Why A “Radical” Policy Makes So Much Sense

By | September 10, 2018

Courtesy of Andreas Wesemann Deposit insurance has been the most sacrosanct component of the regulatory regime for banks since it was widely introduced in Europe during the 1970s following the collapse of the Bretton Woods regime. While designed to protect consumers against undercapitalized banks, and their tendency to collapse in times of stress, deposit insurance… Read More »

Banks’ Progress in Capital Stress Testing Confronts Uncertain Future

By | January 3, 2017

Courtesy of Holly Presley Donald Trump’s surprise election has led many to believe that regulatory relief is on the way for large banks. This optimism has led to a surge in bank stock prices, with the KBW bank index up over 20% since the election. While Treasury Secretary designee Steve Mnuchin has said the new… Read More »

Basel Committee is on the Clock

By | December 12, 2016

The great financial crisis was caused in large part by complexity: complex products, complex institutions, and complex counterparty networks. Yet, post-crisis regulatory reforms designed to prevent future financial crises, principally Basel III, are equally complex. Sophisticated actors easily exploit complex systems, and large banks certainly are sophisticated – if nothing else. Several empirical studies have… Read More »