Capital in Banking
The Role of Capital in Banking in the 19th and 20th Century: The United Kingdom, the United States and Switzerland

This book provides the first historical narrative on the role of capital from the 19th to the 21st century.

Simon Amrein (Author)

9781009276894, Cambridge University Press

Hardback, published 23 January 2025

226 pages
23.5 x 15.8 x 1.7 cm, 0.48 kg

'The Global Financial Crisis of 2008 reminded us, if needed be, of the crucial importance of capital in banking. Simon Amrein unveils the thinking, context and events leading to its dramatic fall from the mid-nineteenth to the late twentieth century in three major financial powers, the United States, the United Kingdom and Switzerland. A fascinating story and a must read for practitioners and regulators alike.' Youssef Cassis, Professor, European University Institute, Florence

Capital in Banking traces the role of capital in US, British, and Swiss banking from the 19th to the 21st century. The book discusses the impact of perceptions and conventions on capital ratios in the 19th century, the effects of the First and Second World Wars, and the interaction of crises and banking regulation during the 1930s and the 1970s. Moreover, it emphasises the origins of the risk-weighted assets approach for measuring capital adequacy and explains how the 2007/2008 crisis led to a renaissance of unweighted capital ratios. The book shows that undisclosed reserves, shareholders' liability, and hybrid forms of capital must be considered when assessing capital adequacy. As the first long-run historical assessment of the topic, this book represents a reference point for publications in economics, finance, financial regulation, and financial history. This title is also available as Open Access on Cambridge Core.

Part I. Introduction: 1. The scope of this book
2. The role and relevance of capital in banking
3. Chapter outline
Part II. Capital Ratios in the Long Run: 1. Capital ratios since 1840
2. The problems of constructing long-run time series
3. Structural changes in balance sheets
4. Hidden reserves
5. Extended Shareholder Liabilities
Part III. The 19th Century: How Ideas Shape Capital Structures: 1. Early banking literature: shared roots, different trajectories
2. England: balancing the interests of shareholders and depositors
3. Switzerland: transparency in the absence of regulation
4. United States: capital requirements from the very beginning
5. Concluding remarks
Part IV. Two World Wars: Overturning Conventions: 1. Wartime dynamics of balance sheets
2. Assets side: financing wars
3. Liabilities side: deposits and capital issuances
4. British banking and capital: the absence of a topic
5. Amalgamations movement in England
6. During and after the second world war: banking without capital
7. Switzerland: the demise of guidelines – and the rise of rules
8. After the first world war: back to normal
9. The importance of formal capital requirements
10. The United States: the birth of risk-weighted assets
11. From deposits to assets: a new supervisory focus
12. Categorizing assets according to risk
13. Concluding remarks
Part V. How Crises Drive Regulation: 1. The international environment and regulatory convergence
2. From informal to formal: the regulation and supervision of banking and capital in the United Kingdom
3. The irrelevance of capital: 1945 to 1973
4. The relevance of capital: the secondary banking crisis
5. The banking acts of 1979 and 1987
6. Regulation in Switzerland – and how it was influenced
7. Banking legislation in the 1930s
8. The evolution of capital regulation: 1934–1991
9. The influence of banks on the evolution of banking regulation
10. The United States: finding the right weight
11. Changes in capital adequacy standards in the 1970s
12. The Latin American debt crisis as a driver of capital standards
13. Concluding remarks
Part VI. Epilogue: 1. Basel capital requirements and the characteristics of leverage before the 2007/2008 financial crisis
2. The limits of capital
Bibliography.

Subject Areas: Macroeconomics [KCB]