Potential Effects of Basel II on the Transmission from Currency Crises to Banking Crises – The Case of South Korea
Halle Institute for Economic Research (IWH)
New York University (NYU); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
January 4, 2011
Journal of Money, Investment and Banking, No. 13, pp. 5-20, 2010
In this paper we evaluate potential effects of the Basel II accord on preventing the transmission from currency crises to banking crises by analyzing the South Korean crisis of 1997. We show that regulatory capital reserves under Basel II would have been lower than those under Basel I, and that therefore Basel II would have had adverse effects on the development of the crisis. Furthermore we investigate whether the behavior of rating agencies has changed since the East Asian crisis. We find no evidence that rating agencies have started to take micro-mismatches into account. Thus, we have reservations concerning the effectiveness of Basel II.
Keywords: Asian Financial Crisis, Bank Portfolios, Currency Mismatch, Maturity Mismatch, Basel II, Credit Ratings
JEL Classification: F3, F40, G15, G28
Date posted: January 6, 2011
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