How individual capital requirements affect capital ratios in UK banks and building societies

The UK¿s Financial Services Authority sets individual capital requirements that reflect its assessment of risks and that are greater than the 8% minimum required by Basel. This approach is similar to the supervisory review in Pillar II proposed in the new Basel Accord. Using regulatory returns for UK banks and building societies, we empirically assess how changing a firm¿s individual capital requirement affects its capital ratio. We find that banks faced with an increase in capital requirements transfer nearly 50% of the increase into changes in their capital holdings, but only 20% if they face a reduction. The results are different for building societies, where about 20% of either an increase or a decrease in capital requirements is transferred into capital ratios

Wage inequality, segregation by skill and the price of capital in an assignment model

Some pieces of empirical evidence suggest that in the U.S., over the last few decades, (i) wage inequality between-plants has risen much more than wage inequality within-plants and (ii) there has been an increase in the segregation of workers by skill into separate plants. This paper presents a frictionless assignment model in which these two features can be explained simultaneously as the result of the decline in the relative price of capital. Additional implications of the model regarding the skill premium and the dispersion in labor productivity across plants are also consistent with the empirical evidence. [resumen de autor

The visible hand of government : creating markets, tax competition and regulating retail financial products

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