Basel III and Solvency II [19]

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Bullet points include: Natural framework is Modigliani-Miller and why it doesn't apply in practice General consensus is that changes will lead to higher costs for banks and affect them more than insurers Debt interest deductibility: Affects banks more, as they rely more on debt financing and Basel III more focused on raising capital requirements TBTF/SIFI and implicit deposit protection underpin: Should affect (large) banks more, if Basel III successfully reduces funding subsidy More scope for risk mitigation under Solvency II and Solvency II explicitly promoting use of internal models Although some arguments to contrary, e.g. Solvency II a more fundamental change versus current position

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