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Can Basel II Enhance Financial Stability?: A Pessimistic View

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  • L. Randall Wray

Abstract

Even as the United States enjoys an economic expansion, there is an undercurrent of concern among economic analysts who follow financial markets. Some feel that the expansion of the credit derivatives markets poses the threat of a crisis similar to the Long-Term Capital Management debacle of 1998. Credit derivatives allow banks to share risks with holders of the derivatives, which are often mutual funds and other nonbank financial institutions. The Basel II accord, now being implemented in many countries, is hailed as a good form of protection against the risk of a series of bank failures of the type that might cause problems in the derivatives markets. Basel II represents a more sophisticated and complex version of the original Basel Accord of 1992, which set minimum capital ratios for various types of bank assets.

Suggested Citation

  • L. Randall Wray, 2006. "Can Basel II Enhance Financial Stability?: A Pessimistic View," Economics Public Policy Brief Archive ppb_84, Levy Economics Institute.
    • Handle: RePEc:lev:levppb:ppb_84
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    References listed on IDEAS

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    1. Wynne Godley, 2005. "Some Unpleasant American Arithmetic," Economics Policy Note Archive 05-5, Levy Economics Institute.
    2. Pierre-Olivier Gourinchas & Hélène Rey, 2007. "From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 11-66, National Bureau of Economic Research, Inc.
    3. Ronnie J. Phillips, "undated". "Narrow Banking Reconsidered, The Functional Approach to Financial Reform," Economics Public Policy Brief Archive ppb_17, Levy Economics Institute.
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    Cited by:

    1. Steven Kates (ed.), 2010. "Macroeconomic Theory and its Failings," Books, Edward Elgar Publishing, number 13728.
    2. James Crotty, 2009. "Structural causes of the global financial crisis: a critical assessment of the 'new financial architecture'," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 563-580, July.
    3. Bernard Vallageas, 2013. "Basel III and the Strengthening of Capital Requirement: The obstinacy in mistake or why “it” will happen again," World Economic Review, World Economics Association, vol. 2013(2), pages 1-67, February.
    4. L. Randall Wray, 2010. "Minsky, the Global Money-Manager Crisis, and the Return of Big Government," Chapters, in: Steven Kates (ed.), Macroeconomic Theory and its Failings, chapter 15, Edward Elgar Publishing.

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