Incentive Conflict in the International Regulatory Agreement on Risk-Based Analysis
Intergovernmental regulatory cooperation is fundamentally cartel behavior and subject to principal-agent conflict. In negotiating the 1988 risk-based capital agreement, most Western officials' unstated goal may arguably be described as postponing the pain of adapting their domestic regulatory schemes to successor officials' watch. They hoped they could buy time by raising book-value capital requirements for Japanese banks. Efficient-market theory indicates that the market value rather than the book value of a bank's capital impacts its funding cost. It also clarifies that restrictions on domestic and foreign bank competition for Japanese deposits unfairly enhance Japanese banks' ability to intermediate that country's massive capital exports.
|Date of creation:||Mar 1990|
|Publication status:||published as "Incentive Conflict in the International Regulatory Agreement on Risk-Based Capital." From Pacific-Basin Capital Markets Research, Volume II, editedby S.G. Rhee and R.P. Chang, pp. 3-21. Amsterdam: Elsevier Science Publishers B.V., 1991.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
- Alexandre Lamfalussy, 1989. "Globalization of financial markets: international supervisory and regulatory issues," Economic Review, Federal Reserve Bank of Kansas City, issue Jan, pages 3-8.
- Reuven Glick, 1987. "Foreign financial institutions in Japan," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue apr24.
- Rogoff, Kenneth, 1985. "Can international monetary policy cooperation be counterproductive?," Journal of International Economics, Elsevier, vol. 18(3-4), pages 199-217, May.
- Patrick J. Kehoe, 1989. "Policy Cooperation Among Benevolent Governments May Be Undesirable," Review of Economic Studies, Oxford University Press, vol. 56(2), pages 289-296.
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