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Difficulties of transferring risk-based capital requirements to developing countries

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  • Kane, Edward J.
  • DEC

Abstract

In principle, financial regulation seeks to remedy recognized deficiencies in a nation's economic, political, and bureaucratic incentivestructures. But the social urgency of particular financial policy problems differ according to a country's stage of development. Regulatory strategies that make sense for industrial countries are unlikely to work the same way in developing countries. The author examines opportunities for transferring the framework of risk-based capital requirements negotiated by the G-10 countries under the auspices of the Bank for International Settlements in Basle. He finds that an unchanged transfer of the Basle framework to developing countries is economically inappropriate and politically infeasible. And its voluntary adapation is difficult because the long-run economic appropriateness of the Basle framework of solvency regulations directly opposes their short-run political embraceability. The author believes that what most urgently needs to be transferred to developing countries are elements of supervisory technology: methods of information collection and management, legal processes for prompt and equitable default resolution, and mechanisms for controlling the incentive conflicts that lead bankers and government supervisors to resist the healthy exit or recapitalization of damaged institutions. As a first step, the author recommends that the World Bank and the Bank for International Settlements promote economically beneficial reforms in information collection and management, reforms that do not preclude flexibility in current prudential standards in individual countries.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1244.

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Date of creation: 31 Jan 1994
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Handle: RePEc:wbk:wbrwps:1244

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Keywords: Banks&Banking Reform; Environmental Economics&Policies; Financial Intermediation; Banking Law; Economic Theory&Research;

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References

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  1. Boyes, William J. & Hoffman, Dennis L. & Low, Stuart A., 1989. "An econometric analysis of the bank credit scoring problem," Journal of Econometrics, Elsevier, vol. 40(1), pages 3-14, January.
  2. Berger, Allen N. & King, Kathleen Kuester & O'Brien, James M., 1991. "The limitations of market value accounting and a more realistic alternative," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 753-783, September.
  3. Cho, Yoon Je, 1986. "Inefficiencies from Financial Liberalization in the Absence of Well-Functioning Equity Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(2), pages 191-99, May.
  4. Demirguc-Kunt, Ash & Huizinga, Harry, 1995. "Barriers to portfolio investments in emerging stock markets," Journal of Development Economics, Elsevier, vol. 47(2), pages 355-374, August.
  5. Scott, David H., 1992. "Revising financial sector policy in transitional socialist economies : will universal banks prove viable?," Policy Research Working Paper Series 1034, The World Bank.
  6. Talley, Samuel H. & Mas, Ignacio, 1990. "Deposit insurance in developing countries," Policy Research Working Paper Series 548, The World Bank.
  7. Demirguc-Kunt, Asli, 1992. "Creditor country regulations and commercial bank lending to developing countries," Policy Research Working Paper Series 917, The World Bank.
  8. Edward J. Kane, 1985. "The Gathering Crisis in Federal Deposit Insurance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611856, December.
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Citations

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Cited by:
  1. Allen B. Frankel, 1998. "Issues in financial institution capital in emerging market economies," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 213-223.
  2. Saadaoui, Zied, 2008. "Capital standards and banking stability in emerging countries: an empirical approach," MPRA Paper 25464, University Library of Munich, Germany.
  3. Inwon Song, 1998. "Korean banks' responses to the strengthening of capital adequacy requirements," Pacific Basin Working Paper Series 98-01, Federal Reserve Bank of San Francisco.
  4. Saadaoui, Zied, 2009. "Fonds propres réglementaires et stabilité bancaire dans les pays émergents
    [Capital Requirements and Banking Stability in Emerging Countries]
    ," MPRA Paper 25217, University Library of Munich, Germany.
  5. Daoud Barkat Daoud, 2003. "Quelle réglementation du capital bancaire pour les pays en développement ?," Revue d'Économie Financière, Programme National Persée, vol. 73(4), pages 311-323.
  6. George G. Kaufman, 1998. "Central banks, asset bubbles, and financial stability," Working Paper Series WP-98-12, Federal Reserve Bank of Chicago.
  7. Thomas Mondschean & Timothy Opiela, 1999. "Bank Time Deposit Rates and Market Discipline in Poland: The Impact of State Ownership and Deposit Insurance Reform," Journal of Financial Services Research, Springer, vol. 15(3), pages 179-196, May.
  8. Agustin Villar, 2006. "Is financial stability policy now better placed to prevent systemic banking crises?," BIS Papers chapters, in: Bank for International Settlements (ed.), The banking system in emerging economies: how much progress has been made?, volume 28, pages 99-122 Bank for International Settlements.
  9. Patrick Honohan, 1997. "Banking system failures in developing and transition countries: Diagnosis and predictions," BIS Working Papers 39, Bank for International Settlements.

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