Time to Set Banking Regulation Right

Stefano Micossi

ISBN 10: 9461381751 / ISBN 13: 9789461381750

Published by Centre for European Policy Studies, 2013

About this Item

Excessive leverage and risk taking by large international banks were the main causes of the 2008-09 financial crisis and the ensuing sharp drop in economic activity and employment. World leaders and central bankers promised that it would not happen again and, to this end, undertook to overhaul banking regulation, first and foremost by rectifying Basel prudential rules. This study argues that the new Basel III Accord and the ensuing EU Capital Requirements Directive IV fail to correct the two main shortcomings of international prudential rules: reliance on banks' risk management models for the calculation of capital requirements and the lack of accountability by supervisors. Accordingly, the authors propose the calculation of capital requirements without risk adjustment and creation of a system of mandated action by supervisors modeled on the U.S. framework of Prompt Corrective Action. They also recommend that banks should be required to issue large amounts of debentures that are convertible into equity in order to strengthen market discipline on management and shareholders.

Seller Inventory # 0035185

Bibliographic Details

• Title: Time to Set Banking Regulation Right
• Publisher: Centre for European Policy Studies
• Publication Date: 2013
• Language: English
• ISBN 10: 9461381751
• ISBN 13: 9789461381750
• Binding: Paperback
• Condition: New

About this title

Synopsis

Excessive leverage and risk taking by large international banks were the main causes of the 2008–09 financial crisis and the ensuing sharp drop in economic activity and employment. World leaders and central bankers promised that it would not happen again and, to this end, undertook to overhaul banking regulation, first and foremost by rectifying Basel prudential rules.

This study argues that the new Basel III Accord and the ensuing EU Capital Requirements Directive IV fail to correct the two main shortcomings of international prudential rules: reliance on banks' risk management models for the calculation of capital requirements and the lack of accountability by supervisors. Accordingly, the authors propose the calculation of capital requirements without risk adjustment and creation of a system of mandated action by supervisors modeled on the U.S. framework of Prompt Corrective Action. They also recommend that banks should be required to issue large amounts of debentures that are convertible into equity in order to strengthen market discipline on management and shareholders.

About the Author

Jacopo Carmassi is an economist at Assonime (the Association of Joint Stock Companies incorporated in Italy). Stefano Micossi is director general of Assonime, visiting professor at the College of Europe in Bruges, member of the board of directors of CEPS, and chairman of the board of the CIR Group.