Basel II: A Contracting Perspective
Financial safety nets are incomplete social contracts that assign responsibility to various economic sectors for preventing, detecting, and paying for potentially crippling losses at financial institutions. This paper uses the theories of incomplete contracts and sequential bargaining to interpret the Basel Accords as a framework for endlessly renegotiating minimal duties and standards of safety-net management across the community of nations. Modelling the stakes and stakeholders represented by different regulators helps us to understand that inconsistencies exist in prior understandings about the range of sectoral effects that the 2004 Basel II agreement might produce. The analysis seeks to explain why, in the U.S., attempting to resolve these inconsistencies has spawned an embarrassingly fractious debate and repeatedly pushed back Basel II's scheduled implementation.
|Date of creation:||Nov 2006|
|Date of revision:|
|Publication status:||published as Edward Kane, 2007. "Basel II: A Contracting Perspective," Journal of Financial Services Research, Springer, vol. 32(1), pages 39-53, October.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Kane, Edward J, 1981.
"Accelerating Inflation, Technological Innovation, and the Decreasing Effectiveness of Banking Regulation,"
Journal of Finance,
American Finance Association, vol. 36(2), pages 355-67, May.
- Edward J. Kane, 1981. "Accelerating Inflation, Technological Innovation, and the Decreasing Effectiveness of Banking Regulation," NBER Working Papers 0638, National Bureau of Economic Research, Inc.
- Paul Kupiec, 2007. "Financial stability and Basel II," Annals of Finance, Springer, vol. 3(1), pages 107-130, January.
- Nicolai J. Foss, 1996. "Firms, Incomplete Contracts and Organizational Learning," DRUID Working Papers 96-2, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
- MacLeod, W. Bentley, 2006.
"Reputations, Relationships and the Enforcement of Incomplete Contracts,"
IZA Discussion Papers
1978, Institute for the Study of Labor (IZA).
- W. Bentley MacLeod, 2006. "Reputations, Relationships and the Enforcement of Incomplete Contracts," CESifo Working Paper Series 1730, CESifo Group Munich.
- Oliver Hart & John Moore, 1999. "Foundations of Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 115-138.
- repec:oup:restud:v:66:y:1999:i:1:p:115-38 is not listed on IDEAS
- 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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