p. 272. Prudential Regulation I: Capital and Liquidity Controls
- Ross Cranston, Ross CranstonProfessor of Law at the London School of Economics
- Emilios Avgouleas, Emilios AvgouleasProfessor of International Banking Law and Finance at the University of Edinburgh; European Banking Authority Stakeholder Group
- Kristin van Zweiten, Kristin van ZweitenClifford Chance Associate Professor of Law and Finance at Oxford University and a Fellow of Harris Manchester College
- Theodor van SanteTheodor van SanteBarrister at 3 Verulam Building, Gray's Inn, London
- and Christoper HareChristoper HareTravers Smith Associate Professor of Corporate and Commercial Law at the University of Oxford and a Fellow of Somerville College
This chapter begins with a discussion of the reasons for bank regulation. Traditionally the focus of bank regulation has been the protection of individual institutions' stability from a depositors' run, and of depositors and deposit guarantee schemes from incurring losses in the event of bank failures. Another fundamental goal was the protection of taxpayers from a public bailout and from the kind of moral hazard that arises when public bank rescues are likely. However, in recent years, and especially since the global financial crisis the focus of bank regulation has broadened to include eliminating too-big-to-fail institutions; increasing capital cushions and introducing liquidity requirements; and enhancing the resilience of the financial system to withstand system-wide shocks. The remainder of the chapter covers prudential regulation, capital regulation, the different phases of the Basel capital framework, and the total loss absorbing capacity standard.