The group of issues that falls under the heading of bank capital adequacy has received a great deal of attention from academics, regulators, and bankers in recent years and is likely to continue as a subject for debate for many years to come. Although the traditional questions debated in the literature on capital adequacy are important and remain unresolved, this paper is not directed at them. Instead, the approach here is to examine how bank regulators operating within the existing legal structure of regulation can pursue optimal policies with respect to the regulation of bank capital

Product lines of traditionally heterogeneous financial institutions are rapidly fusing into a homogeneous blend. Institutions and market structures are reshaping themselves to lower the cost of serving customer demand for financial services. This paper contends that contemporary adaptations exploit scope economies rooted in technological change and deposit‐insurance subsidies to innovative forms of risk‐bearing. As they reorient work flows, financial firms are simultaneously restructuring their organizations to lower net burdens from government regulation. Alternative state and federal regulatory and legislative bodies compete vigorously for the regulatory business of developing institutional hybrids. Evolution of Federal Reserve policy toward “nonbank banks” exemplifies the process

The Equal Credit Opportunity Act of 1975 was amended in 1976 to expand the prohibition on discrimination in the extension of credit to include race, color, religion, national origin, and age. While studies have shown that differences exist between blacks and whites in capital accumulation (Henry Terrell, 1971) and in the use of financial services (Lindley-Selby, 1977), they have not concluded that the differences constituted racial discrimination in the supply of financial services. Evidence presented in support of the original Equal Credit Opportunity Act appears to have been statistically deficient in demonstrating discrimination based on sex. Richard Peterson concluded, ... that commercial banks did not systematically discriminate against potential borrowers based upon their sex before ECOA was passed (1981, p. 560). Testimony alleging racial discrimination in credit extension was given to Congress when it considered the 1976 amendment and to the Federal Reserve when it was in the process of promulgating Regulation B (Board of Governors, 1976, p. 243). Again, no statistical evidence supporting claims of racial discrimination was given. Despite the paucity of statistical evidence supporting the notion that financial institutions racially discriminate in the extension of credit, Congress acted as if such discrimination were pervasive. The mood of Congress is reflected by the statement in the Congressional Record of Representative Frank Annunzio of Illinois