A system of bank supervision and regulation should protect taxpayers and the financial system without imposing unnecessary costs on banks. This article focuses on whether existing capital regulations, one of the primary tools of bank supervision and regulation, are imposing unnecessary costs on...

Several recent studies have recommended greater reliance on subordinated debt as a tool to discipline bank risk taking. Some of these proposals recommend using sub-debt yield spreads as triggers for supervisory discipline under prompt corrective action (PCA). Currently such action is prompted by...

In recent years there has been a growing realization that there are significant problems with the current bank risk-based capital guidelines. As financial firms have become more sophisticated and complex they have effectively arbitraged the existing capital requirements. They have become so good...

Although financial instruments that, in effect, permit corporations to treat preferred stock dividends as tax-deductible interest have been used by nonfinancial corporations since late 1993, bank holding companies (BHCs) did not issue these trust-preferred securities (TPS) until 1996, when the...

Banks have been required to report many securities and all derivatives at fair values under U.S. GAAP rules for many years. Soon, International Accounting Standards will provide some banks with a “fair-value option” for loans, also. A similar movement toward applying fair values to loans may...

Views about the value to depository institutions of the federal safety net differ widely. Resolution of the issue is important because defining the appropriate relationship between the federal safety net and financial institutions is central to the design of efficient financial modernization...