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Capital Adequacy beyond BaselBanking, Securities, and Insurance$
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Hal S. Scott

Print publication date: 2005

Print ISBN-13: 9780195169713

Published to Oxford Scholarship Online: January 2007

DOI: 10.1093/acprof:oso/9780195169713.001.0001

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Capital Regulation for Position Risk in Banks, Securities Firms, and Insurance Companies

Capital Regulation for Position Risk in Banks, Securities Firms, and Insurance Companies

Chapter:
(p.15) 1 Capital Regulation for Position Risk in Banks, Securities Firms, and Insurance Companies
Source:
Capital Adequacy beyond Basel
Author(s):

Richard Herring

Til Schuermann

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780195169713.003.0001

Currently, banks, securities firms, and insurance companies conduct trading businesses that involve many of the same financial instruments and several of the same counterparties but that are subject to very different capital regulations. This chapter examines why these regulatory differences exist and what they imply for differences in minimum capital requirements for position risk. It considers differences in the definition and measurement of regulatory capital, and quantifies differences in the capital charges for position risk by reference to a model portfolio that contains a variety of financial instruments, including equity, fixed income instruments, swaps, foreign exchange positions, and options — instruments that may appear in the portfolios of securities firms, banks, or insurance companies. For most leading firms in the financial services industry, however, market forces, not minimum regulatory capital requirements, appear to play the dominant role in firms' capital decisions. The chapter concludes by considering measures to enhance market discipline.

Keywords:   regulatory differences, financial services, capital requirements, position risk, regulatory capital

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