Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition

History

One of the traditional missions of central banks is to ensure financial stability and solvency of the banking system. To achieve this objective, each national central bank forces banks to have a minimum level of equity to absorb losses in case of a recession.

However, if a central bank happens to be too severe with its capital requirement, banks could be tempted to migrate to a more lenient country with accommodating regulations. In order to prevent this kind of competition between countries, central bankers, who meet every month at the Bank for International Settlements in Basel (Switzerland), have created a committee: the Basel Committee on Banking Supervision (BCBS)^[1], whose aim is to design a minimal equity regulation that all international ...