A capital offence

Capital adequacy regulations are supposed to give the average investor and depositor the confidence that the financial institution is immune from risk, particularly systemic risk; but recent events have exposed the flaws in this notion. Eight days before it was nationalised, Northern Rock had a total capital adequacy ratio of 14.4%, nearly double the 8% required by the Financial Services Authority, in line with Basel II guidelines. HBOS as of December 31, 2007 had a total capital adequacy ratio

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