The New Capital Adequacy Framework: Institutional Constraints and Incentive Structures

41 Pages Posted: 1 Feb 2006

See all articles by Cem Karacadag

Cem Karacadag

International Monetary Fund (IMF) - Monetary and Exchange Affairs Department

Michael Taylor

International Monetary Fund (IMF) - Monetary and Exchange Affairs Department

Date Written: June 2000

Abstract

This paper considers the implementation challenges facing the Basel Committee`s new proposals on bank capital standards. When compared with the existing Capital Accord, the proposals represent a shift across two intersecting dimensionsregulatory versus economic capital, and rules-based versus process-oriented regulation. On minimum capital standards, the case for using external ratings may be stronger than has been recognized, given the divergences in the purpose and design of internal ratings. On supervisory review, ensuring comparability among supervisors and building supervisory capacity will present serious challenges. On enhancing market discipline, incentives for markets to exercise discipline will be required.

Keywords: Capital regulation, bank capital, rating agencies, prudential supervision

JEL Classification: G21

Suggested Citation

Karacadag, Cem and Taylor, Michael William, The New Capital Adequacy Framework: Institutional Constraints and Incentive Structures (June 2000). IMF Working Paper No. 00/93, Available at SSRN: https://ssrn.com/abstract=879640

Cem Karacadag (Contact Author)

International Monetary Fund (IMF) - Monetary and Exchange Affairs Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Michael William Taylor

International Monetary Fund (IMF) - Monetary and Exchange Affairs Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6388 (Phone)