This article analyzes the rise and diffusion of the new order of regulatory capitalism. It offers an analytical and historical analysis of relations between capitalism and regulation and suggests that change in the governance of capitalist economy is best captured by reference to (1) a new division

We analyze the determinants of regulatory capital (the minimum required by regulation), economic capital (that chosen by shareholders without regulation), and actual capital (that chosen with regulation) in the single risk factor model of Basel II. We show that variables that only affect economic

In this paper we propose a general framework for quantification of model risk. This framework allows one to allocate regulatory capital to positions in a given market depending on the extent to which this market can be reliably modeled. Our approach is based on computing worst-case risk measures

the necessary regulatory capital. Yet operational loss data typically exhibit irregularities which complicate the mathematical modeling. It is shown that traditional modeling approaches, including extreme value theory, reach their limits as the structure of operational loss data is barely in line

Ex ante capital position, changes in the different components of

The views expressed herein are not necessarily those of the Board of Governors, other members of its staff, or the Federal Reserve System. Thanks to Mike Zurcher and all the members of the Private Placement Committee for useful conversations and to the Society of Actuaries Credit Risk Loss Experience Study for the data. Correspondence

In recent years, securitization and other financial innovations have provided un-precedented opportunities for banks to reduce substantially their regulatory capital requirements with little or no corresponding reduction in their overall economic risks – a process termed ‘‘regulatory capital

The new Basel Capital Accord will result in more risk sensitive regulatory capital for banks. Likewise, financial conglomerates ’ internal models will become more important in group-wide supervision. Such models are relatively well developed for market and credit risk but for others

This article will discuss assumptions that underlie the practice of using either regulatory capital or economic capital on a stand-alone basis to determine capital allocations. I will give some examples that show how different capital constraints determine the relevance of economic or regulatory

2. Similarities and differences in risk management tools.......................................... 2 3. Approaches to capital regulation......................................................................... 4