OECD Economics Department Working Papers

ISSN :
1815-1973 (online)
DOI :
10.1787/18151973
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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
 

Systemically Important Banks and Capital Regulation Challenges You or your institution have access to this content

Authors:
Patrick Slovik1
Author Affiliations
  • 1: OECD, France

Publication Date
11 Dec 2012
Bibliographic information
No.:
916
Pages
18
DOI
10.1787/5kg0ps8cq8q6-en

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Bank regulation might have contributed to or even reinforced adverse systemic shocks that materialised during the financial crisis. Capital regulation based on risk-weighted assets encourages innovation designed to circumvent regulatory requirements and shifts banks’ focus away from their core economic functions. Tighter capital requirements based on risk-weighted assets may further contribute to these skewed incentives. The estimated macroeconomic costs of redirecting banks’ attention away from such unconventional business practices are low. During a medium-term adjustment period, for each percentage point of bank equity, regulation that is not based on risk-weighted assets would affect annual GDP growth by -0.02 percentage point more than under the risk-weighted assets framework. Refocusing banks’ attention toward their main economic functions is a core requirement for durable financial stability and sustainable economic growth.
Keywords:
Basel III, financial stability, Too-big-to-fail, capital requirements, Basel accord, Bank Leverage, financial regulation, systemically important financial institutions
JEL Classification:
  • G01: Financial Economics / General / Financial Crises
  • G21: Financial Economics / Financial Institutions and Services / Banks; Depository Institutions; Micro Finance Institutions; Mortgages
  • G28: Financial Economics / Financial Institutions and Services / Government Policy and Regulation