Basel II: An Example of 'Smart' Regulation

Posted: 27 Aug 2007

See all articles by Siqiwen Li

Siqiwen Li

University of Newcastle (Australia)

James Juniper

University of Newcastle (Australia)

Date Written: August 23, 2007

Abstract

Abstract: In contrast to Basel I, Basel II features with three-pillar framework which has been acknowledged as superior both by academics and industry. Fundamentally, the three-pillar framework reflects a major shift from simple risk measurement under Basel I to comprehensive risk management under Basel II. However, this obvious aspect of superiority is not a sufficient explanation for the likely success of Basel II as a regulatory system designed for maintaining financial stability. Basel II embraces certain features of "third-way" regulatory strategies which are positioned mid-way between direct government command and self-regulation. This paper will draw on two of those "middle-path" concepts to evaluate Basel II; one of these is "reflexivity" as explicated by Aalders and Wilthagen (1997), another is "responsive regulation" as developed by John Braithwaite and his co-researchers (Ayres & Braithwaite, 1992). This paper will examine the congruence between Basel II and these two concepts of "third-way" regulation to evaluate the likely effectiveness of prudential controls under Basel II.

Suggested Citation

Li, Siqiwen and Juniper, James, Basel II: An Example of 'Smart' Regulation (August 23, 2007). 20th Australasian Finance & Banking Conference 2007 Paper, Available at SSRN: https://ssrn.com/abstract=1009438 or http://dx.doi.org/10.2139/ssrn.1009438

Siqiwen Li (Contact Author)

University of Newcastle (Australia) ( email )

University Drive
Callaghan, NSW 2308
Australia

James Juniper

University of Newcastle (Australia) ( email )

University Drive
Callaghan, NSW 2308
Australia

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