TAILIEUCHUNG - CAPITAL REQUIREMENTS AND BANK BEHAVIOUR: THE IMPACT OF THE BASLE ACCORD

At the time of the moratorium, the total outstanding balance was close to 6 bil- lion DEM. The events that followed had a major influence on the average bond hold- er’s psyche and risk preferences. The build-up of political tensions that led to the col- lapse of SFRY left Serbia and Montenegro united in an effort to continue the legacy of the previous country. However, with civil war on its borders, FRY was not setting economic development as its top priority. By 1992, FRY was politically and econom- ically isolated. A high level of inflation was followed by rapid depreciation of the dinar. Converting the dinar into. | BASLE COMMITTEE ON BANKING SUPERVISION WORKING PAPERS No. 1 - April 1999 Capital requirements and bank behaviour THE IMPACT OF THE Basle accord by a working group led by Patricia Jackson and participation from Craig Furfine Hans Groeneveld Diana Hancock David Jones William Perraudin Lawrence Radecki Masao Yoneyama BANK FOR INTERNATIONAL SETTLEMENTS Basle Switzerland BASLE COMMITTEE ON BANKING SUPERVISION WORKING PAPERS No. 1 - April 1999 Capital requirements and bank behaviour THE IMPACT OF THE Basle accord by a working group led by Patricia Jackson and participation from Craig Furfine Hans Groeneveld Diana Hancock David Jones William Perraudin Lawrence Radecki Masao Yoneyama Abstract The paper reviews the empirical evidence on the impact of the 1988 Basle Accord. It focuses on whether the adoption of fixed minimum capital requirements led some banks to maintain higher capital ratios than would otherwise have been the case and whether any increase in ratios was achieved by increasing capital or reducing lending. Moreover it addresses whether fixed capital requirements have been successful in limiting risk-taking relative to capital as intended or whether banks have been able to take actions to reduce their effectiveness either by shifting to riskier assets within the same weighting band or through capital arbitrage. It looks at two possible side effects. Firstly whether in some periods capital requirements may have had the effect of constraining bank lending thereby causing a credit crunch. Secondly whether the introduction of fixed minimum requirements for banks affected their competitiveness relative to other forms of intermediation. For this paper support and drafting were provided by various members of the Bank of England staff in particular Tolga Ediz and Andy Logan. The Working Papers of the Basle Committee on Banking Supervision contain analysis carried out by experts of the Committee or its working groups. They may also reflect work carried out by one or .

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