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Connecting National Safety Nets: The Dialectics of the Basel II Contracting Process

  • Edward Kane

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    Basel II consists of supervisory guidelines negotiated by representatives of central banks and national regulatory commissions that were members of the Basel committee on Banking Supervision (BCBS). The BCBS is itself a regulatory response to globalization, which is connecting national safety nets in market-driven ways. A country’s financial safety net is a social contract established by short-lived agents for principals in long-lived economic sectors. Restraints placed on the authority of the BCBS members to contract for their principals by domestic politics explains: why Basel II authorizes individual countries to implement the agreement in markedly different ways; why US implementation of Basel II ran into so much doubt, controversy, and delay; and how the implementation debate set small and large banks and the Federal Reserve and other federal regulators against one another. Copyright International Atlantic Economic Society 2007

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    File URL: http://hdl.handle.net/10.1007/s11293-007-9095-5
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    Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

    Volume (Year): 35 (2007)
    Issue (Month): 4 (December)
    Pages: 399-409

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    Handle: RePEc:kap:atlecj:v:35:y:2007:i:4:p:399-409
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    1. Edward J. Kane & Rosalind Bennett & Robert Oshinsky, 2008. "Evidence of Improved Monitoring and Insolvency Resolution after FDICIA," NBER Working Papers 14576, National Bureau of Economic Research, Inc.
    2. Oliver Hart & John Moore, 1998. "Foundations of Incomplete Contracts," NBER Working Papers 6726, National Bureau of Economic Research, Inc.
    3. María J. Nieto & Larry D. Wall, 2006. "Preconditions for a successful implementation of supervisors' prompt corrective action: Is there a case for a banking standard in the European Union?," FRB Atlanta Working Paper 2006-27, Federal Reserve Bank of Atlanta.
    4. Edward J. Kane, 2007. "Basel II: a contracting perspective," Proceedings 1042, Federal Reserve Bank of Chicago.
    5. Robert A. Eisenbeis, 2006. "Home country versus cross-border negative externalities in large banking organization failures and how to avoid them," FRB Atlanta Working Paper 2006-18, Federal Reserve Bank of Atlanta.
    6. MacLeod, W. Bentley, 2006. "Reputations, Relationships and the Enforcement of Incomplete Contracts," IZA Discussion Papers 1978, Institute for the Study of Labor (IZA).
    7. John Pattison, 2006. "International Financial Cooperation and the Number of Adherents: The Basel Committee and Capital Regulation," Open Economies Review, Springer, vol. 17(4), pages 443-458, December.
    8. 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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