FedFin Assessment: What the Agencies Think the Rules Will do and Why Much of That is Wrong
With this report, we conclude our assessment of the regulatory-capital proposal with analysis of what the sum total of the credit (see FSM Report CAPITAL231), operational (see FSM Report OPSRISK22), and market (see FSM Report CAPITAL233) rules could do in the real world of banks, nonbanks, foreign banks, and complex market interconnections. Our first assessment of the proposal’s framework (see FSM Report CAPITAL230) provided the agencies’ quantitative-impact statement (QIS). Here, we evaluate the QIS, expand on the agencies’ qualitative conclusions, and add our own assessment of what might actually happen in the face of these sometimes-contradictory capital incentives.