“How much capital should shareholders be required to invest 11 in their bank?” is a question that has been asked for a half century or more. This concern for the adequacy of bank capital is part of the broader regulation of banks to assure their solvency. The length of time that capital adequacy has been debated suggests the extreme difficulty, really the impossibility, of objectively deciding what is an adequate amount of capital, or what is the appropriate ratio of capital to assets, liabilities, deposits, or risk assets—whichever denominator is eventually chosen. Nevertheless, this does not diminish the importance of capital adequacy as an operational norm for assuring bank solvency.
The paper discusses a model in which growth is a negative function of fiscal burden. Moreover, growth discontinuously switches from high to low as the fiscal burden reaches a critical level. The paper provides an overview of key elements of corporate bankruptcy codes and practice around the world that are relevant to the debate on sovereign debt restructuring. It also describes the broad trends in international financial integration for a sample of industrial countries and explains the cross-country and time-series variation in the size of international balance sheets.
Recent research has highlighted the role that the government budget constraint plays in determining the consumer price level. According to the fiscal approach to price determination, prices adjust so that the discounted value of future real government primary surpluses equals the current real value of public debt. An important implication is that the probability of a crisis involving default on public debt may directly affect consumer prices. This paper examines the interaction of prices and sovereign insolvency crises using simple, continuous-time models of the government budget constraint.
This paper provides an overview of key elements of corporate bankruptcy codes and practice around the world that are relevant to the debate on sovereign debt restructuring. It highlights that there are four components common to most bankruptcy reorganization institutions: a stay on debt collection efforts to prevent a costly run for the assets, broad enforcement of absolute priority, majority voting among creditors on the proposed reorganization plan, and new higher priority financing to keep the firm going while its liabilities are restructured. The paper goes on to argue that these components ought to be present in some form in any sovereign debt restructuring procedure even if important differences exist between corporations and sovereign states. [JEL F34, G34]