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In proposing a top-down system of capital regulation, this Article shares a precautionary attitude toward bank regulation found increasingly in post-Financial Crisis scholarship. The viewpoint is one that favors ex ante financial regulation in which regulators are charged with avoiding public harm. More broadly, this Article rejects the notion that regulation is the enemy of markets and therefore must be minimized. Regulation is viewed neutrally—neither inherently good nor inherently bad—as a co-existing partner in highly complex and ever evolving financial markets.

To develop the case for a top-down system of capital regulation, this Article continues as follows, Part II describes the normative foundations of bank regulation—setting the stage for the examination of the importance of capital regulation. Part III overviews the distinctive elements of rulemaking and supervision in the bank regulatory regime. Part IV briefly maps the development of capital regulation and surveys the current rules and supervision. Part V considers the limitations of capital regulation, which serve as the foundation for proposals for significantly higher capital. Finally, Part VI sets forth a proposal in support of higher capital ratios through the top-down mechanism.



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