Banking in a theory of the business cycle: a model and critique of the Basle Accord on risk-based capital requirements for banks

The Basel Capital Accords and International Mortgage Markets: A Survey of the Literature

“…Thus, if the bank increases its risk exposure, the resulting increase in capital requirements prevents the shifting of wealth to shareholders from depositors and other bank creditors. However, Krainer (2002) argues that Basel I is insufficient to accomplish this goal because of the regulation's crude assessment of risk, which is easily subverted through capital regulation arbitrage. If Basel II is more sensitive to the bank's risk exposure, it may act as a more effective mechanism to maintain the balance between stockholders and risk averse depositors.…”

“…Moreover, except for trading account activities, Basel I does not adjust capital standards to reflect hedging, diversification and risk management techniques. Krainer (2002) links the risk-based capital requirements of Basel I to the resolution of an agency conflict between risk averse depositors and less risk averse bank shareholders. Thus, if the bank increases its risk exposure, the resulting increase in capital requirements prevents the shifting of wealth to shareholders from depositors and other bank creditors.…”

Bank Capital Regulation in Contemporary Banking Theory: A Review of the Literature

“…example, is still very scarce. See Blum and Hellwig 1995, Thakor 1996band Krainer 1999 Ž . In an ongoing research project, Allen and Gale 2000c develop a model that will provide answers to some of these questions.…”

The Lamfalussy Process and EU Bank Regulation: Another Step on the Road to Pan-European Bank Regulation?

“…3 The banking system gathers financial assets and then redeploys them for productive purposes via loans and other types of credit. 4 Because banking and its payment function are so central to the efficient operation of an economy, national governments tend to regulate this industry heavily 5 and at times, even own banks themselves. 6 As international trade has increased in size and importance, the banking system has become more international.…”