Supervisory lessons: faultlines in prudential regulation

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Practically all regulators worldwide now seem focused on regulatory capital, an obvious supervisory approach. However, asset evaluation and provisions for arrears and impairments are only weakly regulated in most countries. Proper income recognition of accruals may not even be regulated. As a result, regulatory capital per book, however defined, often proves ineffective and is, in any case, not necessarily real capital.

It is important to remember that cosmetic practices will take hold in

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