Inadequacy of Nation-Based and Var-Based Safety Nets in the European Union

23 Pages Posted: 17 Jul 2006  

Edward J. Kane

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: April 2006

Abstract

Considered as a social contract, a financial safety net imposes duties and confers rights on different sectors of the economy. Within a nation, elements of incompleteness inherent in this contract generate principal-agent conflicts that are mitigated by formal agreements, norms, laws, and the principle of democratic accountability. Across nations, additional gaps emerge that are hard to bridge. This paper shows that nationalistic biases and leeway in principles used to measure value-at-risk and bank capital make it unlikely that the crisis-prevention and crisis-resolution schemes incorporated in Basel II and EU Directives could allocate losses imbedded in troubled institutions efficiently or fairly across member nations.

Suggested Citation

Kane, Edward J., Inadequacy of Nation-Based and Var-Based Safety Nets in the European Union (April 2006). NBER Working Paper No. w12170. Available at SSRN: https://ssrn.com/abstract=897024

Edward J. Kane (Contact Author)

Boston College - Department of Finance ( email )

Fulton Hall
Chestnut Hill, MA 02467
United States
520-299-5066 (Phone)
617-552-0431 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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