State regulation of bank capital has encouraged banks to game the system and contributed to the problems of the financial crash of 2008. In this new paper, Do we need regulation of bank capital? Some evidence from the UK, it is shown that banks held appropriate amounts of capital before the introduction of capital regulation through the Basel system.
Capital regulation for banks is relatively recent. History demonstrates that capital regulation is not necessary if banks are not underwritten by the state. During the early-mid nineteenth century, there were a number of banking crises. Banks responded by holding higher levels of capital.
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