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Cover Principles of Banking Law

2. Prudential Regulation I: Capital and Liquidity Controls  

Ross Cranston, Emilios Avgouleas, Kristin van Zweiten, Theodor van Sante, and Christoper Hare

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.


Cover Banking Law and Regulation

8. Micro-prudential regulation I  

Capital adequacy

Iris Chiu and Joanna Wilson

This chapter studies capital adequacy regulation, which prescribes that banks can only take certain levels of risk that are supported by adequate levels of capital. In this way, capital adequacy rules provide a form of assurance that banks with adequate levels of capital are likely able to withstand losses that may result from their risk-taking. The Basel Committee developed its first set of capital adequacy standards in the Basel I Capital Accord of 1988. It was subsequently overhauled into the Basel II Capital Accord in 2003. After the global financial crisis of 2007–9, the Basel II Accord’s shortcomings were extensively discussed and the Basel Committee introduced a package of reforms in order to plug the gaps in Basel II. The Basel III package is the most extensive suite of micro-prudential regulation reforms seen to date, as they deal with capital adequacy and a range of other micro-prudential standards.


Cover Principles of Banking Law

Sir Ross Cranston, Emilios Avgouleas, Kristin van Zwieten, Christopher Hare, and Theodor van Sante

Principles of Banking Law provides an authoritative take on banking and services law, with coverage of global banking regulation, payment systems, capital markets, and trade finance. The text takes an international perspective, helping locate domestic banking law and financial law in its wider context. It takes a themed, policy-oriented approach to the subject. The text is composed of four parts. The first part looks at banks and bank regulation. Part II considers banks and customers. Part III examines payment and payment systems. The final part looks at banks and finance.