Chapter

Basel II: A New Regulatory Framework for Global Banking

March 2011

DOI:10.4337/9781849808729.00016

In book: Credit, Money and Macroeconomic Policy

Authors:

Robert Guttmann

Hofstra University

ResearchGate has not been able to resolve any citations for this publication.

ResearchGate has not been able to resolve any references for this publication.

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Dimitris N. Chorafas

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Danièle Nouy

Since its issuance in 1988, the Basel Capital Accord has helped to strengthen the safety and soundness of the international banking system and has become the cornerstone of existing capital standards. The capital ratios of nearly all internationally active banks have improved substantially during this period and the Accord has become a global rule for banks worldwide as over 100 countries have ... [Show full abstract] adopted it, contributing to the improvement of competitive equality.

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While bank supervisors frequently cooperate across countries, novel data on 268 cooperation agreements reveal that such cooperation falls short of covering the global operations of large banking groups. We show that this causes material regulatory arbitrage: banking groups allocate lending activities and risk into third-country subsidiaries when cooperation agreements cover their operations in ... [Show full abstract] other countries. The average distortion in a country’s foreign lending caused by regulatory arbitrage is 21%, with the effect being magnified in the presence of a weak supervisory framework. Taken together, our results indicate that incompleteness in cooperation substantially diminishes its global effectiveness.

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