Abstract: This report by Hal S. Scott and the staff of the Committee on Capital Markets Regulation examines a balanced approach to capital regulation that enhances private market discipline while strengthening the complementary role of government-imposed capital requirements. A regulatory approach that recognizes the dual roles of government and the private market in setting appropriate capital levels at financial institutions will result in a stronger and safer financial system than can be achieved through public regulation alone. The approaches outlined in this paper will achieve the desired goal of a more robust financial system.