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Can Basel II Enhance Financial Stability?: A Pessimistic View

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  • L. Randall Wray

Abstract

Even as the United States enjoys an economic expansion, there is an undercurrent of concern among economic analysts who follow financial markets. Some feel that the expansion of the credit derivatives markets poses the threat of a crisis similar to the Long-Term Capital Management debacle of 1998. Credit derivatives allow banks to share risks with holders of the derivatives, which are often mutual funds and other nonbank financial institutions. The Basel II accord, now being implemented in many countries, is hailed as a good form of protection against the risk of a series of bank failures of the type that might cause problems in the derivatives markets. Basel II represents a more sophisticated and complex version of the original Basel Accord of 1992, which set minimum capital ratios for various types of bank assets.

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Paper provided by Levy Economics Institute in its series Economics Public Policy Brief Archive with number ppb_84.

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Date of creation: May 2006
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Handle: RePEc:lev:levppb:ppb_84

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  1. Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "From World Banker to World Venture Capitalist: US External Adjustment and The Exorbitant Privilege," CEPR Discussion Papers 5220, C.E.P.R. Discussion Papers.
  2. Wynne Godley, 2005. "Some Unpleasant American Arithmetic," Economics Policy Note Archive 05-5, Levy Economics Institute.
  3. Ronnie J. Phillips, . "Narrow Banking Reconsidered, The Functional Approach to Financial Reform," Economics Public Policy Brief Archive ppb_17, Levy Economics Institute.
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Cited by:
  1. James Crotty, 2008. "Structural Causes of the Global Financial Crisis: A Critical Assessment of the ‘New Financial Architecture’," Working Papers wp180, Political Economy Research Institute, University of Massachusetts at Amherst.

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