Notes on Country Risk and International Banking Risk
University of Wollongong in Dubai Working Paper No. 1-2003
Posted: 5 Oct 2003
Date Written: September 2003
Abstract
Over the last two decades, financial crises have tended to occur with increasing frequency. Many of these crises have affected developing countries, often with devastating effects on their growth and development. The recent crisis, which started in mid 1997 in East Asia, and then spread to several parts of the developing world as well as affecting also the developed economies, has illustrated the seriousness of these crises' effects, and the need to improve international mechanism for crisis perception, prevention and management. A brief conclusion based on the literature shows that while the Accord has been an extremely useful tool for the universal comparison of financial institutions, it has been shown to have certain shortcomings and further work on revising capital adequacy requirements will be necessary. This paper also presents an opposite view. Whilst most agree that banks need regulation, the paper questions the complexity of current regulatory capital guidelines and the focus on the possible over-regulation of banks. It suggests the consideration of a new approach of benchmarking economic and regulatory capital for banking systems as a starting point for analysis of capital adequacy of banks within systems, taking into account the interrelationship between country-banking systems' performance and on the basis that there is still the need for a compromise between restoration of banking industry incentive and systemic safety.
Keywords: International Banking, Economic Capital, Regulatory Capital, Systemic Risk, Systematic Risk, Bank Regulation
JEL Classification: F34
Suggested Citation: Suggested Citation