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Article: Formulas or supervision? Remarks on the future of regulatory capital.
- Article from:
- Federal Reserve Bank of New York Economic Policy Review
- Article date:
- October 1, 1998
- Author:
CopyrightCOPYRIGHT 1998 Federal Reserve Bank of New York. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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INTRODUCTION
How much capital should a bank have? There was a time, not too long ago, when the answer to this question seemed simple, at least to some. Then came floating exchange rates, oil shocks, global inflation, swaps, inverse floaters, and other tribulations, and the answer seemed not to be so simple after all. Regulators responded in kind with more complicated formulas; they introduced risk weights, credit-equivalent amounts, potential future exposures, maturity buckets, and disallowances. How does this story end, and what is the moral of the story? Were things ever really simple? Do we have more confidence now in the accuracy of the capital assessments?