Rules, Standards, and Complexity in Capital Regulation

Krishnamurthy, Prasad

doi:10.1086/677653

Cited by 6 publications

(4 citation statements)

References 18 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Several studies have highlighted the growing complexity of risk‐based capital requirements over the last 30 years (see Barth & Miller, 2018; Herring, 2005, 2007, 2016, 2018; Kane, 2007a, 2007b; Krishnamurthy, 2014; Tanda, 2015). Banks now have to comply with liquidity regulations, as well.…”

Section: Resultsmentioning

confidence: 99%

On regulation and excess reserves: The case of Basel III

Miller

Hoarty

2021

J of Financial Research

View full text Add to dashboard Cite

Common explanations for the observed rise in excess bank reserves include payment of interest on reserves and liquidity regulations, but capital regulations may also matter. We show that a profit‐maximizing bank substitutes from higher risk‐weighted loans to lower risk‐weighted reserves and Treasuries if the risk‐based capital ratio, but not the leverage ratio, increases. Estimated treatment effects for “advanced approaches” bank holding companies, the focus of Basel III capital regulations, initially increased for reserves after the regulatory changes but later decreased when treatment effects for Treasuries increased as Treasury yields rose; treatment effects for loans became increasingly negative.

show abstract

Section: Resultsmentioning

confidence: 99%

On regulation and excess reserves: The case of Basel III

Miller

Hoarty

2021

J of Financial Research

View full text Add to dashboard Cite

show abstract

“…The difficulty here is that simple rules also enable regulatory arbitrage. In fact, more granular risk weights were originally designed as a check against banks' risk‐shifting behavior (Haldane & Madouros 2012, p. 15; Krishnamurthy 2014).…”

Section: Ex Post Governance Of Regulatory Arbitragementioning

confidence: 99%

“…453–454; Carletti & Hartman 2002, p. 2; Beck 2008). Perfectly reflecting our present state of ignorance, it is currently debated whether the playing field in banking should be leveled by extending traditional measures such as capital regulation (Krishnamurthy 2014, p. 284) and insurance (Gorton 2009) to the shadow banking sector (see section 2), or whether bank capital requirements should instead be relaxed to curb the unavoidable flow of capital to the unregulated corners of the financial system (Plantin 2014).…”

Section: Ex Post Governance Of Regulatory Arbitragementioning

confidence: 99%

“…The risk is nevertheless credible that banks adjust their level of capital and risk‐taking to competition pressures (Allen & Gale 2004; Krishnamurthy 2014). While disturbing the continuity of existing regulatory relationships and possibly prompting regulatory arbitrage, the present push toward deregulation will also make financial regulation less relational by increasing the number and diversity of interacting participants (Rossi 2005, p. 23).…”

Section: Ex Post Governance Of Regulatory Arbitragementioning

confidence: 99%

See 1 more Smart Citation

The problem of regulatory arbitrage: A transaction cost economics perspective

Marjosola

2019

Regulation & Governance

View full text Add to dashboard Cite

Regulatory arbitrage, or the ability of financial firms to circumvent or neutralize rules, is a classic problem of financial regulation. This article draws on transaction cost economics (TCE) to reformulate this old problem, thus defining regulatory arbitrage as a contracting hazard arising from interactions between the regulator and regulated firms, given bounded rationality and opportunism. Following standard TCE, the article first characterizes the implicit regulatory contract in finance, focusing in particular on the mobile and elastic nature of regulated actors and financial assets as well as the contested utility of financial innovation. It is then argued that this incomplete and hazard‐prone regulatory bargain must be matched with a governance structure that both adapts to unforeseen circumstances and avoidance strategies and copes with radical uncertainty about the welfare consequences of financial innovation. To that end, the article discusses how a governance structure here termed “relational regulation” might facilitate such ex post governance under uncertainty.

show abstract

Regulating SIFIs in the European Union: A Primer from an Economic Point of View

Horsch

2016

Regulating and Supervising European Financial Markets

View full text Add to dashboard Cite

Rules, Standards, and Complexity in Capital Regulation

Cited by 6 publications

References 18 publications

On regulation and excess reserves: The case of Basel III

On regulation and excess reserves: The case of Basel III

The problem of regulatory arbitrage: A transaction cost economics perspective

Regulating SIFIs in the European Union: A Primer from an Economic Point of View

Contact Info

Product

Resources

About