Inadequacy of Nation-Based and VaR-Based Safety Nets in the European Union
AbstractConsidered as a social contract, a financial safety net imposes duties and confers rights on different sectors of the economy. Within a nation, elements of incompleteness inherent in this contract generate principal-agent conflicts that are mitigated by formal agreements, norms, laws, and the principle of democratic accountability. Across nations, additional gaps emerge that are hard to bridge. This paper shows that nationalistic biases and leeway in principles used to measure value-at-risk and bank capital make it unlikely that the crisis-prevention and crisis-resolution schemes incorporated in Basel II and EU Directives could allocate losses imbedded in troubled institutions efficiently or fairly across member nations.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12170.
Date of creation: Apr 2006
Date of revision:
Publication status: published as Kane, Edward. "Inadequacy of nation-based and VaR-based safety nets in the European Union." The North American Journal of Economics and Finance 17, 3 (December 2006): 375-387.
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- Kane, Edward J., 2006. "Inadequacy of nation-based and VaR-based safety nets in the European Union," The North American Journal of Economics and Finance, Elsevier, vol. 17(3), pages 375-387, December.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-04-29 (All new papers)
- NEP-CBA-2006-04-29 (Central Banking)
- NEP-FIN-2006-04-29 (Finance)
- NEP-FMK-2006-04-29 (Financial Markets)
- NEP-RMG-2006-04-29 (Risk Management)
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