Basel III A: Regulatory History

Yale Program on Financial Stability Case Study 2014-1A-V1, October 2014

13 Pages Posted: 14 Mar 2015

See all articles by Christian McNamara

Christian McNamara

Yale University - Yale Program on Financial Stability

Thomas Piontek

Government of the United States of America - Office of Financial Research

Andrew Metrick

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

Date Written: March 11, 2015

Abstract

From the earliest efforts to mandate the amount of capital banks must maintain, regulators have grappled with how best to accomplish this task. Until the 1980s, regulation had been based largely on discretion and judgment. In the wake of two bank failures, the central bank governors of the G10 countries established the Basel Committee on Banking Supervision (BCBS) and in 1988, the BCBS introduced a capital measurement system, Basel I. The system represented a triumph of the fixed numerical approach, however, critics worried that it was too blunt an instrument. In 1999, the BCBS issued Basel II, a proposal to add supervisory review and disclosure components to the minimum capital requirement methodology of Basel I. Basel II represented a synthesis of the dueling approaches to capital regulation, however some argued that the new standards led to an explosion in the complexity of financial regulation. This case explores the history of the efforts to regulate bank capital that led to Basel II and set the stage for Basel III.

Keywords: Systemic Risk, Financial Crises, Financial Regulation

JEL Classification: G01, G28

Suggested Citation

McNamara, Christian and Piontek, Thomas and Metrick, Andrew, Basel III A: Regulatory History (March 11, 2015). Yale Program on Financial Stability Case Study 2014-1A-V1, October 2014. Available at SSRN: https://ssrn.com/abstract=2576906 or http://dx.doi.org/10.2139/ssrn.2576906

Christian McNamara

Yale University - Yale Program on Financial Stability ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Thomas Piontek

Government of the United States of America - Office of Financial Research ( email )

717 14th Street, NW
Washington DC, DC 20005
United States

Andrew Metrick (Contact Author)

Yale School of Management ( email )

165 Whitney Avenue
New Haven, CT 06511
United States
(203)-432-3069 (Phone)

HOME PAGE: http://faculty.som.yale.edu/andrewmetrick/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

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