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Rebalancing the three pillars of Basel II

  • Jean-Charles Rochet

The author observes that the three pillars of Basel II seem uneven: Pillars 1 and 2 have eclipsed Pillar 3 - market discipline and disclosure - in the Basle Committee's deliberations. He works through a banking model of the three Pillars, shows how the optimal liquidation limit varies with bank liability structure and the regulatory regime, and argues that market discipline, via mandatory subordinated debt issuance, can reduce forbearance by supervisors.

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Article provided by Federal Reserve Bank of New York in its journal Economic Policy Review.

Volume (Year): (2004)
Issue (Month): Sep ()
Pages: 7-21

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Handle: RePEc:fip:fednep:y:2004:i:sep:p:7-21:n:v.10no.2
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