Research Handbooks in Financial Law series
Edited by Matthias Haentjens and Bob Wessels
Chapter 9: Regulatory capital requirements and bail in mechanisms
In this chapter the new regulations concerning capital requirements for banks are discussed from the perspective of crisis management in the banking sector. Specific attention will be paid to the European framework for banks. New capital requirements as they are introduced through the implementation in Europe of the Basel III standards must be placed in the context of a number of significant failures of individual banks occurring since the economic crisis spun off in the US-markets in the summer of 2007. Large and smaller individual institutions’ failures demonstrated that the internationally agreed principles for capital requirements in the Basel II accord of 2004 contained significant gaps. In fact the Basel II accord contained only very few specific rules on qualitative capital requirements. The Basel II accord and its predecessors rather focused on regulating the ‘asset-side’ of the bank’s balance sheet and provided not as much detailed rules on the ‘liability-side’. One of the lessons learnt of the financial crisis that developed in the international markets had been, that banks’ funding mechanisms and internal policies that aimed at improving the rates of return on investments worsened the financial problems of banks. The financial crisis with banks was also caused by shareholders’ activism distracting the focus of bank’s management and resulting in a strong bias on investors’ interests.
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