Capital Adequacy beyond Basel: Banking, Securities, and Insurance

Capital Adequacy beyond Basel: Banking, Securities, and Insurance

Capital Adequacy beyond Basel: Banking, Securities, and Insurance

Capital Adequacy beyond Basel: Banking, Securities, and Insurance

Synopsis

This book is timely since the Basel Committee on Banking Supervision at the Bank for International Settlements is in the process of making major changes in the capital rules for banks. It is important that capital adequacy regulation helps to achieve financial stability in the most efficient way. Capital adequacy rules have become a key tool to protect financial institutions. The research contained within the book covers some key issues at stake in the capital requirements for insurance and securities firms. The contributors are among the leading scholars in financial economics and law. Their contributions analyze the use of subordinated debt, internal models, and rating agencies in addition to examining the effect on capital of reinsurance, securitization, credit derivatives, and similar instruments.

Excerpt

This book appears at a time when the Bank for International Settlements in Basel is revising its rules for the regulation of capital adequacy, as developed by the Basel Committee on Banking Supervision (BCBS or Basel Committee). These rules were originally issued in 1988 to ensure adequate capital for credit risk in internationally active G-10 banks and were then added to, in 1996, to require capital for market risk. They have since been adopted by more than 100 countries in some form. This book looks beyond Basel in two ways. First, it calls into question many aspects of the Basel Committee's proposed revisions of its credit risk rules and the creation of new capital requirements for operational risk. Second, it shows that the Basel rules may not be appropriate for securities firms and insurance companies and thus calls into question the proposed use of these rules for the consolidated capital requirements of financial service holding companies—holding companies that own banks, securities firms, and insurance companies. This book is a collection of essays by experts in the field that bring together the disciplines of business, economics, and law to examine what the best approach to capital adequacy will be in the future.

In the United States, the current Basel rules have been extended to financial service holding companies at the consolidated holding company level and to all banks; the capital rules of the Securities and Exchange Commission (SEC) apply to securities firms, and the rules of state regulators apply to insurance companies, whether or not these companies are part of a financial service holding company. the European Union has extended the Basel rules to all securities firms and banks, but special rules continue to . . .

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