Any solvency regime for financial institutions should be aligned with the two fundamental objectives of regulation: protecting liability holders and securing the stability of the financial system. From these objectives we derive two normative requirements for capital adequacy tests, called surplus and num\'eraire invariance, respectively. We characterize capital adequacy tests that satisfy surplus and num\'eraire invariance, establish an intimate link between these requirements, and highlight an inherent tension between the ability to meet them and the desire to give credit for diversification raire. We establish an intimate link between surplus- and num\'{e}raire invariant tests} .
Any solvency regime for financial institutions should be aligned with the fundamental objectives of regulation: protecting liability holders and securing the stability of the financial system. The first objective leads to consider surplus-invariant capital adequacy tests, i.e. tests that do not depend on the surplus of a financial institution. We provide a complete characterization of closed, convex, surplus-invariant capital adequacy tests that highlights an inherent tension between surplus-invariance and the desire to give credit for diversification . The second objective leads to requiring consistency of capital adequacy tests across jurisdictions. Of particular importance in this respect are capital adequacy tests that remain invariant under a change of num\'{eraire. We establish an intimate link between surplus- and num\'{e}raire invariant tests} .
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