IDEAS home Printed from https://ideas.repec.org/p/ajw/wpaper/03097.html
   My bibliography  Save this paper

The Recourse Rule, Regulatory Arbitrage, and the Financial Crisis

Author

Listed:
  • Miller, Stephen

    (Mercury Publication)

Abstract

In November 2001, bank regulators finalized the so-called Recourse Rule, which lowered risk weights from 1 to 0.5 for A-rated and to 0.2 for AAA- and AA-rated private-label securitization tranches. After the rule change, on average, securitization-active

Suggested Citation

  • Miller, Stephen, 2017. "The Recourse Rule, Regulatory Arbitrage, and the Financial Crisis," Working Papers 03097, George Mason University, Mercatus Center.
    • Handle: RePEc:ajw:wpaper:03097
    as

    Download full text from publisher

    File URL: https://mercury.mercatus.org/Product/ViewFinalCopy/92
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Asli Demirguc-Kunt & Enrica Detragiache & Ouarda Merrouche, 2013. "Bank Capital: Lessons from the Financial Crisis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(6), pages 1147-1164, September.
    2. Isil Erel & Taylor Nadauld & René M. Stulz, 2014. "Why Did Holdings of Highly Rated Securitization Tranches Differ So Much across Banks?," The Review of Financial Studies, Society for Financial Studies, vol. 27(2), pages 404-453.
    3. Acharya, Viral & Engle, Robert & Pierret, Diane, 2014. "Testing macroprudential stress tests: The risk of regulatory risk weights," Journal of Monetary Economics, Elsevier, vol. 65(C), pages 36-53.
    4. Charles W. Calomiris & Stephen H. Haber, 2015. "Fragile by Design: The Political Origins of Banking Crises and Scarce Credit," Economics Books, Princeton University Press, edition 1, volume 1, number 10177-2.
    5. Laeven, Luc & Levine, Ross, 2009. "Bank governance, regulation and risk taking," Journal of Financial Economics, Elsevier, vol. 93(2), pages 259-275, August.
    6. Jones, David, 2000. "Emerging problems with the Basel Capital Accord: Regulatory capital arbitrage and related issues," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 35-58, January.
    7. Merton, Robert C., 1995. "Financial innovation and the management and regulation of financial institutions," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 461-481, June.
    8. Mark J. Flannery, 2014. "Maintaining Adequate Bank Capital," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(s1), pages 157-180, February.
    9. Richard Brealey, 2006. "Basel II: The Route Ahead or Cul‐de‐Sac?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 18(4), pages 34-43, September.
    10. Elena Loutskina & Philip E. Strahan, 2011. "Informed and Uninformed Investment in Housing: The Downside of Diversification," The Review of Financial Studies, Society for Financial Studies, vol. 24(5), pages 1447-1480.
    11. Flannery, Mark J. & Giacomini, Emanuela, 2015. "Maintaining adequate bank capital: An empirical analysis of the supervision of European banks," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 236-249.
    12. Anat R. Admati & Peter M. DeMarzo & Martin F. Hellwig & Paul Pfleiderer, 2013. "Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Socially Expensive," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2013_23, Max Planck Institute for Research on Collective Goods.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stephen Matteo Miller, 2018. "The recourse rule, regulatory arbitrage, and the financial crisis," Journal of Regulatory Economics, Springer, vol. 54(2), pages 195-217, October.
    2. James R. Barth & Stephen Matteo Miller, 2018. "On the Rising Complexity of Bank Regulatory Capital Requirements: From Global Guidelines to their United States (US) Implementation," JRFM, MDPI, vol. 11(4), pages 1-33, November.
    3. Barth, James R. & Miller, Stephen Matteo, 2018. "Benefits and costs of a higher bank “leverage ratio”," Journal of Financial Stability, Elsevier, vol. 38(C), pages 37-52.
    4. Stephen Matteo Miller & Blake Hoarty, 2021. "On regulation and excess reserves: The case of Basel III," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 44(2), pages 215-247, June.
    5. Miller, Steph & Hoarty, Blake, 2020. "On Regulation and Excess Reserves: The Case of Basel III," Working Papers 10243, George Mason University, Mercatus Center.
    6. Rainer Baule & Christian Tallau, 2016. "Revisiting Basel risk weights: cross-sectional risk sensitivity and cyclicality," Journal of Business Economics, Springer, vol. 86(8), pages 905-931, November.
    7. Thomas L. Hogan, 2021. "A Review of the Regulatory Impact Analysis of Risk-Based Capital and Related Liquidity Rules," JRFM, MDPI, vol. 14(1), pages 1-29, January.
    8. Shekhar Aiyar & Charles W. Calomiris & Tomasz Wieladek, 2015. "How to Strengthen the Regulation of Bank Capital: Theory, Evidence, and A Proposal," Journal of Applied Corporate Finance, Morgan Stanley, vol. 27(1), pages 27-36, March.
    9. Gehrig, Thomas & Iannino, Maria Chiara, 2021. "Did the Basel Process of capital regulation enhance the resiliency of European banks?," Journal of Financial Stability, Elsevier, vol. 55(C).
    10. Markus Behn & Rainer Haselmann & Vikrant Vig, 2022. "The Limits of Model‐Based Regulation," Journal of Finance, American Finance Association, vol. 77(3), pages 1635-1684, June.
    11. W. Scott Frame & Lawrence J. White, 2009. "Technological change, financial innovation, and diffusion in banking," FRB Atlanta Working Paper 2009-10, Federal Reserve Bank of Atlanta.
    12. Mohamed Albaity & Mohammadmahdi Toobaee, 2017. "The Risk-sensitivity of Bank Capital Requirements: The Moderating Effects of Capital Regulation and Supervisory Power," International Journal of Economics and Financial Issues, Econjournals, vol. 7(2), pages 94-102.
    13. Delis, Manthos D. & Kim, Suk-Joong & Politsidis, Panagiotis N. & Wu, Eliza, 2021. "Regulators vs. markets: Are lending terms influenced by different perceptions of bank risk?," Journal of Banking & Finance, Elsevier, vol. 122(C).
    14. Conlon, Thomas & Cotter, John & Molyneux, Philip, 2020. "Beyond common equity: The influence of secondary capital on bank insolvency risk," Journal of Financial Stability, Elsevier, vol. 47(C).
    15. Hogan, Thomas L., 2015. "Capital and risk in commercial banking: A comparison of capital and risk-based capital ratios," The Quarterly Review of Economics and Finance, Elsevier, vol. 57(C), pages 32-45.
    16. Altunbas, Yener & Manganelli, Simone & Marques-Ibanez, David, 2017. "Realized bank risk during the great recession," Journal of Financial Intermediation, Elsevier, vol. 32(C), pages 29-44.
    17. Behn, Markus & Haselmann, Rainer & Vig, Vikrant, 2014. "Risk weights, lending, and financial stability: Limits to model-based capital regulation," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100430, Verein für Socialpolitik / German Economic Association.
    18. Richard J. Herring, 2018. "The Evolving Complexity of Capital Regulation," Journal of Financial Services Research, Springer;Western Finance Association, vol. 53(2), pages 183-205, June.
    19. Chernykh, Lucy & Cole, Rebel A., 2015. "How should we measure bank capital adequacy for triggering Prompt Corrective Action? A (simple) proposal," Journal of Financial Stability, Elsevier, vol. 20(C), pages 131-143.
    20. Herring, Richard J., 2018. "The Evolving Complexity of Capital Regulation," Working Papers 18-01, University of Pennsylvania, Wharton School, Weiss Center.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ajw:wpaper:03097. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jim Ronyak (email available below). General contact details of provider: https://edirc.repec.org/data/mcgmuus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.