This paper reviews the cost-benefit analysis, or “regulatory impact analysis” (RIA), in US bank regulators’ risk-based capital (RBC) rule proposals. We review the principles of cost-benefit analysis and its application by US bank regulators. We provide a brief background on RBC rules and...

The Federal Reserve regulates U.S. commercial banks using a system of risk-based capital (RBC) regulations based on the Basel Accords. Unfortunately, the Fed’s mis-rating of several assets such as mortgage-backed securities encouraged the build-up of these assets in the banking system and was...