Banking on Basel : the future of international financial regulation

The turmoil in financial markets that resulted from the 2007 subprime mortgage crisis in the United States indicates the need to dramatically transform regulation and supervision of financial institutions. Would these institutions have been sounder if the 2004 Revised Framework on International Convergence of Capital Measurement and Capital Standards (Basel II accord) negotiated between 1999 and 2004 had already been fully implemented? Basel II represents a dramatic change in capital regulation of large banks in the countries represented on the Basel Committee on Banking Supervision: Its internal ratings-based approaches to capital regulation will allow large banks to use their own credit risk models to set minimum capital requirements. The Basel Committee itself implicitly acknowledged in spring 2008 that the revised framework would not have been adequate to contain the risks exposed by the subprime crisis and needed strengthening. This crisis has highlighted two more basic questions about Basel II: One, is the method of capital regulation incorporated in the revised framework fundamentally misguided? Two, even if the basic Basel II approach has promise as a paradigm for domestic regulation, is the effort at extensive international harmonization of capital rules and supervisory practice useful and appropriate? This book provides the answers. It evaluates Basel II as a bank regulatory paradigm and as an international arrangement, considers some possible alternatives, and recommends significant changes in the arrangement. The aftermath of the 2007 subprime mortgage crisis indicates the need for transformation within the financial regulation market. To what extent will the 2004 Revised Framework on International Convergence of Capital Measurement and Capital Standards (Basel II) symbolize a watershed moment in the international effort toward regulatory convergence? "Banking on Basel" provides an assessment of the implications of Basel II and considers how the lack of a single national policy interest will influence the international dimension of these accords. The author offers a three-point analysis that evaluates domestic bank capital regulation - particularly, minimum capital requirements applicable to large banks - analyzes the dynamics of international coordination, and comparatively measures the alternatives and outcomes of implementation. Ultimately, the balance between regulatory models and the operation of the Basel committee will determine the far-reaching ramifications of Basel II. The volume concludes with recommendations concerning the adoption of a new regulatory regime, as well as the need for changes to both substantive capital rules and institutional mechanisms "The turmoil in financial markets that resulted from the 2007 subprime mortgage crisis in the United States indicates the need to dramatically transform regulation and supervision of financial institutions. Would these institutions have been sounder in the 2004 Revised Framework on International Convergence of Capital Measurement and Capital Standards (Basel II accord) - negotiated between 1999 and 2004 - had already been fully implemented? Basel II represents a dramatic change in capital regulation of large banks in the countries represented on the Basel Committee on Banking Supervision. This study evaluates Basel II as a bank regulatory paradigm and as an international arrangement, considers some possible alternatives, and recommends significant changes in the arrangement."--Page 4 de la couverture "The turmoil in financial markets that resulted from the 2007 subprime mortgage crisis in the United States indicates the need to dramatically transform regulation and supervision of financial institutions. Would these institutions have been sounder in the 2004 Revised Framework on International Convergence of Capital Measurement and Capital Standards (Basel II accord) - negotiated between 1999 and 2004 - had already been fully implemented? Basel II represents a dramatic change in capital regulation of large banks in the countries represented on the Basel Committee on Banking Supervision. This study evaluates Basel II as a bank regulatory paradigm and as an international arrangement, considers some possible alternatives, and recommends significant changes in the arrangement."--Jacket