Bank Regulation: One Size Does Not Fit All
Journal of Applied Finance & Banking, Vol. 7, No. 5, 2017, pp. 1-27
Posted: 20 Jan 2017 Last revised: 15 Aug 2017
Date Written: February 9, 2017
Bank business models show diverse risk characteristics, but these differences are not sufficiently considered in Pillar 1 of the regulatory framework. Even if the business model is analyzed within the European SREP, global Pillar 2 approaches differ and could lead to competitive disadvantages. Using the framework of Miles et al. (2012), we examine a dataset of 115 European banks, which is split into retail, wholesale, and trading banks. We show that shifts in funding structure affect business models differently. Consequently, a “one size” approach in Pillar 1 for the regulation of banks does not fit all.
Keywords: Bank Business Models, Bank Capital Requirements, Cost of Capital, Leverage Ratio, Regulation, SREP
JEL Classification: G21, G28, G32
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