A Critical Evaluation

New Bank Equity Capital Rules in the European Union
IW policy paper
German Economic Institute (IW)
A Critical Evaluation
This paper presents and critically evaluates the bank capital requirement rules proposed by the European Union – the capital requirements directive CRD IV and the capital requirements regulation CRR. First, the rules of the Basel III accord about equity capital standards of banks are briefly described. Second, the EU proposal based on Basel III is presented. The article differentiates between rules fully in line with Basel III, modified rules, and new rules not covered by Basel III. Third, the EU proposals are critically evaluated. The paper concludes that the proposals lead in the right direction, but there is still much room for improvement. In fact, some of the planned rules should be urgently revised. Above all, risk weights for member state government bonds must be introduced, liquidity requirements should not overly favour government bonds, and member states should be able to set capital requirements which are greater than 18% of risk-weighted assets.

Felix Kövener / Jürgen Matthes / Thomas Schuster: New Bank Equity Capital Rules in the European Union – A Critical Evaluation
IW policy paper
German Economic Institute (IW)
More on the topic

Financing Gaps of Companies during the Covid-19 Pandemic
For firms’ business and investment decisions their access to finance is a critical determinant. In times when access to finance becomes tight, corporations face either higher capital costs or they have to postpone their investment decisions when credit lines ...
IW
The new inflationary environment: How persistent are the current inflationary dynamics and how is monetary policy expected to respond?
We argue that the period of low inflation has come to an end based on six structural factors, which define the new inflationary environment.
IW