Risks, Ratings and Regulation: Toward a Reorganization of Credit Via Basel Ii?
31 Pages Posted: 2 Nov 2005
Date Written: November 25, 2004
This paper analyses the political and economic consequences of Basel II with special attention to the relationship between regulatory authorities and financial market actors. Their role is analyzed with regard to the process of shaping the accord and to the future implications of the accord for both groups of actors. As their interests converge in the Basel II process several times a mere confrontation of their roles and interests is not enough to grasp the qualitative change in banking regulation due to the Basel II process. Therefore, in a second step the paper does only single out the leading agents of the accord and analyze their roles but also captures the entire regulatory framework within the politico-economic environment in which it developed. The findings of the second part show that the changes in the banking system triggered by Basel II will lead to a transformation of the organization, regulation, and governance of bank lending to date. Basel II, with its emphasis on risk measurement and on market discipline, acts as a catalyst, promoter, and accelerator of lending practices based on ratings and risk-adjusted pricing.
Keywords: Basel II, prudential banking regulation, risk management, political economy of banking
JEL Classification: G18, G21, F33
Suggested Citation: Suggested Citation