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Incentive Conflict in the International Regulatory Agreement on Risk-Based Analysis


  • Edward J. Kane


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.

Suggested Citation

  • Edward J. Kane, 1990. "Incentive Conflict in the International Regulatory Agreement on Risk-Based Analysis," NBER Working Papers 3308, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3308
    Note: ME

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    References listed on IDEAS

    1. 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.
    2. Reuven Glick, 1987. "Foreign financial institutions in Japan," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue apr24.
    3. Rogoff, Kenneth, 1985. "Can international monetary policy cooperation be counterproductive?," Journal of International Economics, Elsevier, vol. 18(3-4), pages 199-217, May.
    4. 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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    Cited by:

    1. E.P. Davis, 1993. "Problems of Banking Regulation: An EC Perspective," FMG Special Papers sp59, Financial Markets Group.

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