•Regulation proposals have to take the leverage cycle into account.•We study the effect of different regulation schemes.•Basle II reduces/increases systemic risk if leverage is low/high.
We use a ...simple agent based model of value investors in financial markets to test three credit regulation policies. The first is the unregulated case, which only imposes limits on maximum leverage. The second is Basle II and the third is a hypothetical alternative in which banks perfectly hedge all of their leverage-induced risk with options. When compared to the unregulated case both Basle II and the perfect hedge policy reduce the risk of default when leverage is low but increase it when leverage is high. This is because both regulation policies increase the amount of synchronized buying and selling needed to achieve deleveraging, which can destabilize the market. None of these policies are optimal for everyone: risk neutral investors prefer the unregulated case with low maximum leverage, banks prefer the perfect hedge policy, and fund managers prefer the unregulated case with high maximum leverage. No one prefers Basle II.
The present article investigates the legal nature of the Basel Committee on Banking Supervision and seeks to identify the legal effects of the acts produced by the committee under public ...international law. It reassesses the most influential contemporary theories that have endeavoured to describe and capture the increasing trend towards 'de-formalization' of international law, of which the Basel Committee, with its peculiar composition and standard-setting activities, is generally considered as one of the most significant examples. The articles comes to the conclusion that the Basel Committee's normative outputs cannot be qualified as legal acts or legal facts under international law as they are best described as the results of flexible and informal standard-setting activities developed by domestic regulators at the international level, with a view to inducing compliance by national legislators and stakeholders. The lack of a formal 'pedigree' under international law has not undermined their effectiveness; on the contrary, it can be considered a peculiar feature of a successful model of transnational cooperation where soft law standards have been translated into domestic legislation.
Against the background of the reform councils of the 15th century, the role of professors from the University of Heidelberg as envoys and their relationship to the Hussite question will be examined. ...They also acted as anti-Hussite experts, authors of treatises, polemical writings and sermons. When inquisition trials took place in the area of influence of the Electoral Palatinate during the Hussite Wars, professors, council envoys and scholars were also involved, so that a core of anti-Hussite advisors around Elector Palatine Louis III becomes recognizable.
The Basel Committee on Banking Supervision and the composite wider legal and institutional environment to which it is part provide a useful case study to illustrate how complexity is addressed in the ...public policy realm. As its central proposition, this article argues that it is possible to identify a specific pattern and logic underlying the governance of global banking today. The pattern concerns the institutional dimension of global banking regulation, particularly with respect to the distribution of regulatory powers among the various actors involved, and the legal relationships between these actors. The overall pattern seems to follow a certain logic, which will be explored and explained borrowing the military distinction between strategy, operations, and tactics.
The financial crisis has been blamed on reckless bankers, irrational exuberance, government support of mortgages for the poor, financial deregulation, and expansionary monetary policy. Specialists in ...banking, however, tell a story with less emotional resonance but a better correspondence to the evidence: the crisis was sparked by the international regulatory accords on bank capital levels, the Basel Accords.
In one of the first studies critically to examine the Basel Accords,Engineering the Financial Crisisreveals the crucial role that bank capital requirements and other government regulations played in the recent financial crisis. Jeffrey Friedman and Wladimir Kraus argue that by encouraging banks to invest in highly rated mortgage-backed bonds, the Basel Accords created an overconcentration of risk in the banking industry. In addition, accounting regulations required banks to reduce lending if the temporary market value of these bonds declined, as they did in 2007 and 2008 during the panic over subprime mortgage defaults.
The book begins by assessing leading theories about the crisis-deregulation, bank compensation practices, excessive leverage, "too big to fail," and Fannie Mae and Freddie Mac-and, through careful evidentiary scrutiny, debunks much of the conventional wisdom about what went wrong. It then discusses the Basel Accords and how they contributed to systemic risk. Finally, it presents an analysis of social-science expertise and the fallibility of economists and regulators. Engagingly written, theoretically inventive, yet empirically grounded,Engineering the Financial Crisisis a timely examination of the unintended-and sometimes disastrous-effects of regulation on complex economies.
The topic of this Special Issue of the Journal of International Economic Law is the Basel Committee on Banking Supervision (BCBS or Committee) and its place in international economic law and ...governance. Created in 1974, the Committee's single most important output is the Basel Accord, setting out capital requirements for banks. The first version of the Accord was concluded in 1988 ('Basel I'), now thirty years ago, and revised in 2004 ('Basel II'). A decade ago, the global financial crisis prompted further and deeper reforms to the Accord itself ('Basel III'), as well as relevant institutional changes both inside and outside the Committee.
This article explores the question of legitimacy that underpins Basel III. First, I present a general framework for assessing how legitimacy operates within the global financial system through an ...analysis of the internal and external dimensions. I next address the internal dimension, exploring the legitimacy of the Basel Committee on Banking Supervision (BCBS) as a body that exercises a type of public authority through the generation of norms/standards. I then analyse how the public law standards of transparency and accountability are currently being implemented within the BCBS system. Finally, I examine the external dimension, considering how the legitimacy of the BCBS is related to the international system. In particular, it is argued that because of the direct link between bailouts and human rights violations, the legitimacy of the BCBS is also tied to its role in promoting financial stability in the post-crisis architecture by protecting social rights within states.
Starting from the observation of an increased politicisation of the financial regulatory debate, the article analyse how this might impact the relationship between the European Union (EU) and the ...Basel Committee on Banking Supervision. The article first describes transnational financial networks after the global crisis and the shift from trust in technocratic autonomy to distrust and politicisation. It then turns to examine the legal bases for the participation of EU institutions in the Basel standard-setting process, discussing the challenges posed under EU law. The last part of the research focusses on the European Parliament’s attempts to become an active player in the transnational financial regulatory arena and on the role it might play to enhance the democratic legitimacy of the Basel process., Starting from the observation of an increased politicisation of the financial regulatory debate, the article analyse how this might impact the relationship between the European Union (EU) and the Basel Committee on Banking Supervision. The article first describes transnational financial networks after the global crisis and the shift from trust in technocratic autonomy to distrust and politicisation. It then turns to examine the legal bases for the participation of EU institutions in the Basel standard-setting process, discussing the challenges posed under EU law. The last part of the research focusses on the European Parliament's attempts to become an active player in the transnational financial regulatory arena and on the role it might play to enhance the democratic legitimacy of the Basel process.
Multilevel governance describes a global system that enrolls some State functions to perform global solutions for global problems. Multilevel-governance and multilevel administration has legality and ...accountability concerns on their own, although, there are multilevel structures with non-State playground of trans-regulatory nature at the supranational level of cooperation which means additional shades to the colourful palette.
The procedure and the structure concerning the creation and the evaluation of effective banking supervision standards in Europe is unique. Given the fact that the European administrative system is also unique, and as Basel rules are produced in a trans-regulatory network, the collaboration of the two 'sui generis' systems requires the rethinking of the classical legal order features. Rule of law which is the basis of classical international relations in the view of public administration of States is challenged by the newly emerged solutions. Necessity and proportionality are put on a scale with classical values and requirements of public administration and efficiency and effectiveness seem to put it on the side of the new type of collaboration.
The normative background of such structure is still immature. The multilevel administrative system of financial supervision including the European Union and the Basel Committee for Banking Supervision at supranational level or speaking in a wider context: the framework for multilevel governance with non-state actors at supranational level, is therefore an example for global administrative law of infant status.
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