Abstract: Over the past few years, financial regulators have devoted considerable attention to the development of consolidated capital rules for financial conglomerates. This chapter explores the theoretical justifications for these new requirements and explains that the case for consolidated capital oversight consists of four separate lines of argument: technical weaknesses inherent in traditional entity-level capital requirements; unique risks associated with financial conglomerates; additional diversification benefits that financial conglomerates enjoy; and recognition that financial firms increasingly employ modern risk management techniques that work on a group-wide basis. The specific rules for consolidated capital requirements that the Basel Committee proposed in April 2003 are reviewed, and it is argued that the Basel proposals constitute a relatively rudimentary system of consolidated capital requirements, dealing primarily with the technical weaknesses of entity level capital and making little effort to deal with more subtle issues such as unique risks of financial conglomerates, diversification benefits, and modern risk-management techniques. A number of significant practical considerations contribute to the relatively limited scope of the Basel Committee's proposal, which will likely prevent the development of a more comprehensive system of consolidated capital oversight for financial conglomerates in the foreseeable future.