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Banking On Basel: The Future of International Financial Regulation
     

Banking On Basel: The Future of International Financial Regulation

by Daniel Tarullo
 

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The turmoil in financial markets that resulted from the 2007 subprime mortgage crisis in the United States indicates the need to dramatically transform regulation and supervision of financial institutions. Would these institutions have been sounder if the 2004 Revised Framework on International Convergence of Capital Measurement and Capital Standards (Basel II accord)

Overview

The turmoil in financial markets that resulted from the 2007 subprime mortgage crisis in the United States indicates the need to dramatically transform regulation and supervision of financial institutions. Would these institutions have been sounder if the 2004 Revised Framework on International Convergence of Capital Measurement and Capital Standards (Basel II accord)—negotiated between 1999 and 2004—had already been fully implemented? Basel II represents a dramatic change in capital regulation of large banks in the countries represented on the Basel Committee on Banking Supervision: Its internal ratings–based approaches to capital regulation will allow large banks to use their own credit risk models to set minimum capital requirements. The Basel Committee itself implicitly acknowledged in spring 2008 that the revised framework would not have been adequate to contain the risks exposed by the subprime crisis and needed strengthening.

This crisis has highlighted two more basic questions about Basel II: One, is the method of capital regulation incorporated in the revised framework fundamentally misguided? Two, even if the basic Basel II approach has promise as a paradigm for domestic regulation, is the effort at extensive international harmonization of capital rules and supervisory practice useful and appropriate? This book provides the answers. It evaluates Basel II as a bank regulatory paradigm and as an international arrangement, considers some possible alternatives, and recommends significant changes in the arrangement.

Editorial Reviews

The American Prospect
. . . can be read and appreciated by the non-economist who wants to understand how global efforts to keep up with speculative bank maneuvers failed as dismally as domestic regulation did, and what should be done now.
The American Journal of International Law
Provides a timely, careful and sharply critical account of a pivotal international financial regulatory regime.... Tarullo's comprehensive account of Basel II is surprisingly clear and penetrating given the staggering complexity of the new accord and is essential reading for anyone interested in international financial regulation.

Robert Litan
[Banking on Basel] is thorough, erudite, and well written. It will become a classic on this important topic of international bank regulation.

American Prospect
...it can be read and appreciated by the non-economist who wants to understand how global efforts to keep up with speculative bank maneuvers failed as dismally as domestic regulation did, and what should be done now.

Product Details

ISBN-13:
9780881324914
Publisher:
Columbia University Press
Publication date:
11/30/2008
Sold by:
Barnes & Noble
Format:
NOOK Book
Pages:
256
File size:
1 MB

Meet the Author

Daniel K. Tarullo is a member of the Board of Governors of the United States Federal Reserve Board since January 28, 2009, in which capacity he also serves as the chairman of the Federal Financial Institutions Examination Council (FFIEC). He is also a professor at the Georgetown University Law Center. He specializes in international economic regulation, banking law, and international law.

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