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Basel II: A Contracting Perspective

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Author Info

  • Edward Kane

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Abstract

Financial safety nets are incomplete social contracts that assign responsibility to various economic sectors for preventing, detecting, and paying for potentially crippling losses at financial institutions. This paper uses the theories of incomplete contracts and sequential bargaining to interpret the Basel Accords as a framework for endlessly renegotiating minimal duties and standards of safety-net management across the community of nations. Modelling the stakes and stakeholders represented by different regulators helps us to understand that inconsistencies exist in prior understandings about the range of sectoral effects that the 2004 Basel II agreement might produce. The analysis seeks to explain why, in the U.S., attempting to resolve these inconsistencies has spawned an embarrassingly fractious debate and repeatedly pushed back Basel II's scheduled implementation.

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1007/s10693-007-0020-5
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Bibliographic Info

Article provided by Springer in its journal Journal of Financial Services Research.

Volume (Year): 32 (2007)
Issue (Month): 1 (October)
Pages: 39-53

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Handle: RePEc:kap:jfsres:v:32:y:2007:i:1:p:39-53

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Web page: http://www.springerlink.com/link.asp?id=102934

Related research

Keywords: Basel II; sequential contracting; financial safety nets; financial regulation; incomplete contracts;

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References

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  1. Oliver Hart & John Moore, 1998. "Foundations of Incomplete Contracts," Harvard Institute of Economic Research Working Papers 1846, Harvard - Institute of Economic Research.
  2. W. Bentley MacLeod, 2006. "Reputations, Relationships and the Enforcement of Incomplete Contracts," CESifo Working Paper Series 1730, CESifo Group Munich.
  3. Edward J. Kane, 1981. "Accelerating Inflation, Technological Innovation, and the Decreasing Effectiveness of Banking Regulation," NBER Working Papers 0638, National Bureau of Economic Research, Inc.
  4. Nicolai J. Foss, 1996. "Firms, Incomplete Contracts and Organizational Learning," DRUID Working Papers 96-2, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  5. Rasmusen Eric Bennett, 2001. "Explaining Incomplete Contracts as the Result of Contract-Reading Costs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 1(1), pages 1-39, October.
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Citations

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Cited by:
  1. Adrian Blundell-Wignall & Paul E Atkinson, 2008. "The Sub-prime Crisis: Causal Distortions and Regulatory Reform," RBA Annual Conference Volume, in: Paul Bloxham & Christopher Kent (ed.), Lessons from the Financial Turmoil of 2007 and 2008 Reserve Bank of Australia.
  2. Douglas Evanoff & Philip Bartholomew & Robert DeYoung & Cosmin Lucaci & Ronnie Phillips, 2008. "Bank Structure Conference Impact Study," Journal of Financial Services Research, Springer, vol. 34(2), pages 99-121, December.
  3. Richard Herring, 2007. "The Rocky Road to Implementation of Basel II in the United States," Atlantic Economic Journal, International Atlantic Economic Society, vol. 35(4), pages 411-429, December.
  4. Edward Kane, 2007. "Connecting National Safety Nets: The Dialectics of the Basel II Contracting Process," Atlantic Economic Journal, International Atlantic Economic Society, vol. 35(4), pages 399-409, December.
  5. Alexander, Gordon J. & Baptista, Alexandre M. & Yan, Shu, 2012. "When more is less: Using multiple constraints to reduce tail risk," Journal of Banking & Finance, Elsevier, vol. 36(10), pages 2693-2716.
  6. Robert Jarrow, 2007. "A Critique of Revised Basel II," Journal of Financial Services Research, Springer, vol. 32(1), pages 1-16, October.
  7. Cihak, Martin & Demirguc-Kunt, Asli & Johnston, R. Barry, 2013. "Incentive audits : a new approach to financial regulation," Policy Research Working Paper Series 6308, The World Bank.

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