Emerging Issues in Banking Regulation

Abstract

The paper provides an overview of the profound and rapid changes in banking brought about by technology and deregulation, and discusses the hurdles that will have to be negotiated for putting in place the three pillars-capital adequacy rules, supervision, and market discipline-of the bank regulatory framework envisioned by the New Basel Accord (Basel II). It argues that, especially for developing countries, finding the right balance between regulation, supervision, and market discipline is likely to be difficult. Considerable technical expertise as well as political discipline-which can be viewed as a fourth pillar-will be required to implement Basel II.

Keywords: WP, bank, capital, market, market discipline, regulator, banking, regulation, Basel standards, bank regulator, problem bank, bank capital, risk-management process, insurance fund, bank behavior, risk management system, bank VaR model, capital requirement, bank association, bank management, Nonbank financial institutions, Financial statements, Deposit insurance, Bank supervision, Global

JEL Classification: G21, G28, H83, G23