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Basel II vs. Prompt Corrective Action: Which Is Best for Public Policy?
Author(s) -
Kaufman George
Publication year - 2005
Publication title -
financial markets, institutions and instruments
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.386
H-Index - 23
eISSN - 1468-0416
pISSN - 0963-8008
DOI - 10.1111/j.0963-8008.2005.00111.x
Subject(s) - capital requirement , basel i , risk weighted asset , basel iii , operational risk , basel ii , business , order (exchange) , risk adjusted return on capital , capital (architecture) , capital adequacy ratio , actuarial science , risk analysis (engineering) , economics , risk management , finance , microeconomics , incentive , human capital , capital formation , financial capital , economic growth , archaeology , history
This paper evaluates Basel II as a tool for achieving public policy objectives relative to structured early intervention and resolution (SEIR) and prompt corrective action (PCA) in the U.S. It concludes that Basel II compares poorly in terms of maintaining a safe and sound banking system. Rather, Basel II resembles a “best practices” guide for banks in managing their credit risk. However, it may do damage through encouraging some large banks in the U.S. to successfully pressure their regulators to lower the capital trigger ratio for “adequately‐capitalized” status in order to benefit from any lower regulatory capital requirement that Basel II may give them.