The Economics of
Capital Regulation in Financial Conglomerates
Alan D. Morrison
Abstract
Financial conglomerates combine banking, insurance and
other financial services within a single corporation. In this non-technical
paper I consider the rationale for capital regulation in such firms and I
examine some current policy questions in the light of this discussion. My
first conclusion is that the different institutional structure of bank and
insurance companies mitigates against harmonisation of capital requirements
across different conglomerate businesses. I also question the received
industry view that regulators should account for diversification effects at
the holding company level.
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