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Introduction: Why Basel Matters

In: The Basel Capital Accords in Developing Countries

Author

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  • Ricardo Gottschalk

Abstract

The primary aim of banking regulation is to improve the stability of the financial system. In a strict sense, banking regulation is not neutral, since it constrains the space within which banks operate and has the potential to influence their operational and strategic decisions. In the process, bank performance is affected. Banking regulation may be focused solely on the banking system, or it can take a macro-prudential perspective, for example, by focusing on the interactions between macroeconomic events and bank balance sheets. By recognising the interaction between the macroeconomic and banking sector dimensions, it can act to minimise possible negative effects deriving from it. Furthermore, banking regulation may influence the macro-economy directly, for example, when it takes the forms of liquidity regulation and capital regulation. The latter function may reinforce the pro-cyclicality of bank credit and therefore affect the economy as a whole.

Suggested Citation

  • Ricardo Gottschalk, 2010. "Introduction: Why Basel Matters," Palgrave Macmillan Books, in: Ricardo Gottschalk (ed.), The Basel Capital Accords in Developing Countries, chapter 1, pages 1-15, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-27609-3_1
    DOI: 10.1057/9780230276093_1
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