Credit, Money and Macroeconomic Policy
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Credit, Money and Macroeconomic Policy

A Post-Keynesian Approach

Edited by Claude Gnos and Louis-Philippe Rochon

With recent turmoil in financial markets around the world, this unique and up-to-date book addresses a number of challenging issues regarding monetary policy, financial markets and macroeconomic policy.
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Chapter 8: Basel II: A New Regulatory Framework for Global Banking

Robert Guttmann


Robert Guttmann INTRODUCTION In June 2004 the Basel Committee on Banking Supervision (BCBS), affiliated with the Bank for International Settlements (BIS) and comprising central bankers from the leading economies, proposed a framework for converging capital standards of banks across the globe.1 This so-called ‘Basel II’ initiative obliges banks to calculate minimum capital standards by assessing on a regular basis prevailing credit, market and operational risks. Those risk assessments will have to be shared with banking supervisors in both home and host countries. And the banks will at the same time also have to abide by rather stringent reporting requirements pertaining to their risk calculations and capital provisions so that investors can get a good sense of what banks have done to meet the requirements of the new regulation. Even though its full implementation is still several years away, it is fair to say that Basel II will in all likelihood emerge as the dominant new financial regulation of the next decade and a major milestone in the evolution of banking. First, we are talking here about a regulatory initiative of unprecedented global scope which in the end will probably have been adopted by 100 or so countries – among them all the industrialized countries as well as the principal emerging-market economies (EMEs). It will induce banks to manage their risk–return trade-offs in a much more organized fashion and make that management central to their operation. It will also transform the interaction among banks, their shareholders and their supervisors into a...

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