Study Reveals Eurozone Capital Requirements Could Spark Regulatory Arbitrage
The study looked at how much money banks need to set aside in case a country in the Eurozone can't pay back its debts. By using a special statistical model, the researchers found that the current rules for setting aside this money might not be enough. In fact, the amount of money needed could be up to 8 times higher than what is currently required. This is because the current rules don't always match the actual risk of a country defaulting on its debt. The study suggests that changes are needed to make sure banks are prepared for the real risks involved.