Abstract
The supervision decides how much capital each bank needs. If new capital does not bring pro-rata new income, the return on the existing shares will decrease. Their value will fall. That is the reason why an increase in the capital never happens without compulsive regulation. A short trip through the accounting mirror presents a wonderland where the meaning of the word real is unreal, supervisors are white knights, and mighty accounting magic keeps zombie banks wandering around alive. The answer to the question: “What should supervision do?” is “Whatever it takes to make sure that the bank has required capital (and some more on top of it) and enough liquidity to timely meet all its obligations.”
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
Glossary: Delaveraging.
- 2.
Onaran (2017).
- 3.
The assumption that the management will do nothing to offset adverse developement.
Reference
Onaran, Y. (2017, July 11). https://www.bloomberg.com/. Retrieved from https://www.bloomberg.com/quicktake/zombie-banks.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Copyright information
© 2020 The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
Odak, D. (2020). What Should Supervision Do?. In: A Political Economy of Banking Supervision. Springer, Cham. https://doi.org/10.1007/978-3-030-48547-4_7
Download citation
DOI: https://doi.org/10.1007/978-3-030-48547-4_7
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-030-48546-7
Online ISBN: 978-3-030-48547-4
eBook Packages: Economics and FinanceEconomics and Finance (R0)