Newsletter Dec 2006: Professors call for US-type capital safeguard in EU

LONDON – A group of 15 European professors of finance and other academics is calling for a US-style Prompt Corrective Action (PCA) regime to prevent an excessive decline in bank capital when the new Basel risk-based capital rules are introduced across the EU. The group, which forms the European Shadow Financial Regulatory Committee (ESFRC), and meets regularly to discuss public policy issues, fears that the new rules (Basel II) could result in such large falls in minimum capital that it will leave banks vulnerable to major shocks and increase the likelihood of banking crises.