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Full-Text Articles in Business Law, Public Responsibility, and Ethics
Basel Ii And The Need For Bank Distress Resolution Procedures, Clas Wihlborg
Basel Ii And The Need For Bank Distress Resolution Procedures, Clas Wihlborg
Business Faculty Articles and Research
It is argued that without increased market discipline Basel II is not likely to resolve the regulatory problem caused by explicit and implicit guarantees of depositors and other creditors of banks. One way to enhance market discipline is to implement proposals for mandatory subordinated debt. For these proposals to achieve their objective, the non-insurance of holders of subordinated debt must be credible. Increased credibility of non-insurance of one or several groups of creditors could be enhanced if distress resolution procedures for banks were pre-specified, and if they made possible bank failures without serious disruption of the financial system. The existence …
The New Basel Capital Accord: Making It Effective With Stronger Market Discipline, Harald Benink, Clas Wihlborg
The New Basel Capital Accord: Making It Effective With Stronger Market Discipline, Harald Benink, Clas Wihlborg
Business Faculty Articles and Research
In January 2001 the Basel Committee on Banking Supervision proposed a new capital adequacy framework to respond to deficiencies in the 1988 Capital Accord on credit risk. The main elements or ‘pillars’ of the proposal are capital requirements based on the internal risk-ratings of individual banks, expanded and active supervision, and information disclosure requirements to enhance market discipline. We discuss the incentive effects of the proposed regulation. In particular, we argue that it provides incentives for banks to develop new ways to evade the intended consequences of the proposed regulation. Supervision alone cannot prevent banks from ‘gaming and manipulation’ of …