Abstract

http://ssrn.com/abstract=2371612
 


 



Rules, Standards, and Complexity in Capital Regulation


Prasad Krishnamurthy


U.C. Berkeley School of Law; University of California, Berkeley - School of Law, Berkeley Center for Law, Business and the Economy; University of California, Berkeley

May 2014

Journal of Legal Studies, Forthcoming

Abstract:     
This article considers whether cost-benefit analysis can inform two important issues in the capital regulation of banks: (1) the choice of a rule or standard and (2) the level of complexity in that rule or standard. I analyze these issues by examining the historical adoption of minimum capital requirements and risk-based capital requirements. I argue that simple, minimum capital requirements are most useful when regulators seek to manage poorly understood risks with large externalities. I argue that risk-weighted capital requirements are most useful when regulators face well-understood risks while acting as agents of ordinary bank creditors. I suggest how these principles can help inform regulatory decision-making in the face of uncertainty over the cost of capital regulation.

Number of Pages in PDF File: 31

Keywords: bank, regulation, cost-benefit, capital, rules, standards

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Date posted: December 25, 2013 ; Last revised: June 10, 2014

Suggested Citation

Krishnamurthy, Prasad, Rules, Standards, and Complexity in Capital Regulation (May 2014). Journal of Legal Studies, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2371612

Contact Information

Prasad Krishnamurthy (Contact Author)
U.C. Berkeley School of Law ( email )
215 Boalt Hall
Berkeley, CA 94720-7200
United States
University of California, Berkeley - School of Law, Berkeley Center for Law, Business and the Economy ( email )
Berkeley, CA 94720-7200
University of California, Berkeley ( email )
310 Barrows Hall
Berkeley, CA 94720
United States
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