Regulation, Risk and Performance of U.K. Clearing Banks 1965-75

Abstract

Section II identifies three distinct phases of regulation and puts forward four different hypotheses regarding the effects of these regulatory changes on bank performance. The risks associated with banking are then discussed and some conventional capital adequacy tests are performed. Section III establishes an alternative framework of analysis, based on Jensen's [I 7] formulation of the capital asset pricing model. Using this approach the validity of each hypothesis established in section II is examined. Finally, some conclusions are reached as to the efficacy of the different types of regulatory policy.