Basel I, Basel II, and Emerging Markets: A Nontechnical Analysis

Publication Date: May 2008

Publisher: Johns Hopkins University. School of Advanced International Studies

Author(s): Bryan Jonathan Balin

Research Area: Banking and finance

Keywords: Basel Accord(s); international bank supervision

Type: Thesis/Dissertation

Coverage: United States

Abstract:

The Basel Accords, while extremely influential, are oftentimes too detailed and technical to be easily accessible to the nontechnical policymaker or interested scholar. This paper looks to fill that gap by detailing the origin, regulation, implementation, criticism, and results of both Basel I and Basel II.

Findings of note include (1) the limited scope and general language of Basel I gives banks excessive
leeway in their interpretation of its rules, and, in the end, allows financial institutions to take improper
risks and hold unduly low capital reserves; (2) Basel II seeks to extend the breath and precision of
Basel I, bringing in factors such as market and operational risk, market-based discipline and surveillance, and regulatory mandates, but is oftentimes excessively long and complex; (3) both Basel I and II effectively ignore the implications of their rules on emerging market banks; and that (4) although each accord states that its positions are not recommended for application in emerging market economies, the use of Basel I and II by most private and public organizations as truly international banking standards predicates the inclusion of emerging markets in each accord.