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A closer look at Dexia: The case of the misleading capital ratios. CEPS Commentary, 19 October 2011

De Groen, Willem Pieter (2011) A closer look at Dexia: The case of the misleading capital ratios. CEPS Commentary, 19 October 2011. [Policy Paper]

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    Abstract

    Banking supervisors and regulators attach too much importance to the current capital ratios, despite the multi-indicators approach encouraged by Basel III. The recent experience of Dexia shows that reliance on this single capital indicator can be very costly. A month before the announcement of the €94 billion rescue package on October 10th,1 the Belgian-French bank stressed that it still had a solid capital reserve.2 The bank quoted regulatory capital ratios at the end of June that were well above the legal standards. Why then did this seemingly sound bank fail? And why did the EBA stress tests, whose results were published only in July, fail to signal Dexia’s problems?

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    Item Type: Policy Paper
    Subjects for non-EU documents: Countries > Belgium
    Countries > France
    EU policies and themes > Policies & related activities > economic and financial affairs > Single Market > capital, goods, services, workers
    EU policies and themes > Policies & related activities > economic and financial affairs > financial crisis 2008-on and consequences/reforms
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Centre for European Policy Studies (Brussels) > CEPS Commentaries
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 20 Oct 2011 16:27
    Number of Pages: 6
    Last Modified: 20 Oct 2011 16:27
    URI: http://aei.pitt.edu/id/eprint/32631

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