Bank Capital Regulation in Contemporary Banking Theory: A Review of the Literature

Posted: 29 Jan 2001

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Abstract

This paper reviews the theoretical literature on bank capital regulation and analyses some of the approaches to redesigning the 1988 Basel Accord on capital standards. The paper starts with a review of the literature on the design of the financial system and the existence of banks. It proceeds with a presentation of the market failures that justify banking regulation and an analysis of the mechanisms that have been suggested to deal with these failures. The paper then reviews the theoretical literature on bank capital regulation. This is followed by a brief history of capital regulation since the 1988 Basel Capital Accord and a presentation of both the alternative approaches that have been put forward on setting capital standards and the Basel Committee's proposal for a new capital adequacy framework.

Keywords: Banking regulation, capital standards, Basel Capital Accord

JEL Classification: G21, G28

Suggested Citation

Santos, João A. C., Bank Capital Regulation in Contemporary Banking Theory: A Review of the Literature. Available at SSRN: https://ssrn.com/abstract=256999

João A. C. Santos (Contact Author)

Federal Reserve Bank of New York ( email )

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