International Financial Co-Operation: Political Economics of Compliance with the 1988 Basel Accord

227 Pages·2008·0.89 MB·English

by  Bryce Quillin

International Financial Co-operation
The 1988 Basel Accord – now commonly referred to as “Basel I” – has exerted
a strong influence on prudential financial sector regulatory policy and inter-
national financial politics, yet controversy has always surrounded the Accord’s
impact on the safety and competitiveness of the world’s largest financial institu-
tions and the evolution of transnational regulatory convergence.
The author provides a comprehensive examination of the impact of the 1988
Basel Accord on the capital adequacy regulations of developed economies. This
study seeks to understand if the Accord affected broad or isolated convergence
of 18 developed states’ bank credit risk regulations from 1988 to 2000 and also
to understand what political economic variables influenced observed levels of
regulatory convergence. Quillin creates a quantitative database of developed
countries’ interpretations of the Basel rules which shows that many persistent
distinctions remained in the way they implemented the Accord. This book also
explores why convergence emerged among a subset of states, yet not others, by
testing a battery of political economic explanations.
This book is very timely in providing guidance on many of the challenges
that the second Accord faces as it moves into the implementation phase. It also
contributes to a broader understanding of the implementation of international
financial regulatory regimes and the process of transnational policy convergence
and divergence. It will appeal to those studying International Finance and
Banking, International Economic Relations and Political Economics.
Bryce Quillinis Economist at the World Bank, USA.
Routledge international studies in money and banking
1 Private Banking in Europe 8 Organisational Change and
Lynn Bicker Retail Finance
An ethnographic perspective
2 Bank Deregulation and Richard Harper, Dave Randall
Monetary Order and Mark Rouncefield
George Selgin
9 The History of the Bundesbank
3 Money in Islam Lessons for the European Central
A study in Islamic political Bank
economy Jakob de Haan
Masudul Alam Choudhury
10 The Euro
4 The Future of European A challenge and opportunity for
Financial Centres financial markets
Kirsten Bindemann Published on behalf of Société
Universitaire Européenne de
5 Payment Systems in Global Recherches Financières (SUERF)
Perspective Edited by Michael Artis,
Maxwell J. Fry, Isaak Kilato, Axel Weber and
Sandra Roger, Elizabeth Hennessy
Krzysztof Senderowicz,
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and John Trundle Europe
Edited by Nigel Healey and
6 What Is Money? Barry Harrison
John Smithin
12 Money, Credit and Prices
7 Finance Stability
A characteristics approach Paul Dalziel
Edited by David Blake
13 Monetary Policy, Capital Flows 20 Central Banking Systems
and Exchange Rates Compared
Essays in memory of Maxwell Fry The ECB, the pre-Euro Bundesbank
Edited by William Allen and and the Federal Reserve System
David Dickinson Emmanuel Apel
14 Adapting to Financial 21 A History of Monetary Unions
Globalisation John Chown
Published on behalf of Société
Universitaire Européenne de 22 Dollarization
Recherches Financières (SUERF) Lessons from Europe and the
Edited by Morten Balling, Americas
Eduard H. Hochreiter and Edited by Louis-Philippe Rochon
Elizabeth Hennessy and Mario Seccareccia
23 Islamic Economics and Finance
15 Monetary Macroeconomics
A glossary, 2nd edition
A new approach
Muhammad Akram Khan
Alvaro Cencini
24 Financial Market Risk
16 Monetary Stability in Europe
Measurement and analysis
Stefan Collignon
Cornelis A. Los
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25 Financial Geography
Challenges for financial markets,
A banker’s view
business strategies and policy
Risto Laulajainen
makers
Published on behalf of Société
26 Money Doctors
Universitaire Européenne de
The experience of international
Recherches Financières (SUERF)
financial advising 1850–2000
Edited by Morten Balling,
Edited by Marc Flandreau
Frank Lierman and
Andrew Mullineux 27 Exchange Rate Dynamics
A new open economy
18 Monetary Unions macroeconomics perspective
Theory, history, public choice Edited by Jean-Oliver Hairault
Edited by Forrest H. Capie and and Thepthida Sopraseuth
Geoffrey E. Wood
28 Fixing Financial Crises in the
19 HRM and Occupational Health 21st Century
and Safety Edited by Andrew G. Haldane
Carol Boyd
29 Monetary Policy and
Unemployment
The U.S., Euro-area and Japan
Edited by Willi Semmler
30 Exchange Rates, Capital Flows 38 Monetary Policy in Central
and Policy Europe
Edited by Rebecca Driver, Miroslav Beblav´y
Peter J.N. Sinclair and
Christoph Thoenissen 39 Money and Payments in Theory
and Practice
31 Great Architects of Sergio Rossi
International Finance
The Bretton Woods era 40 Open Market Operations and
Anthony M. Endres Financial Markets
Edited by David G. Mayes and
32 The Means to Prosperity Jan Toporowski
Fiscal policy reconsidered
41 Banking in Central and Eastern
Edited by Per Gunnar Berglund
Europe 1980–2006
and Matias Vernengo
From communism to capitalism
Stephan Barisitz
33 Competition and Profitability in
European Financial Services
42 Debt, Risk and Liquidity in
Strategic, systemic and policy
Futures Markets
issues
Edited by Barry A. Goss
Edited by Morten Balling,
Frank Lierman and
43 The Future of Payment Systems
Andy Mullineux
Edited by Stephen Millard,
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34 Tax Systems and Tax Reforms
Victoria Saporta
in South and East Asia
Edited by Luigi Bernardi,
44 Credit and Collateral
Angela Fraschini and
Vania Sena
Parthasarathi Shome
45 Tax Systems and Tax Reforms
35 Institutional Change in the in Latin America
Payments System and Monetary Edited by Luigi Bernardi,
Policy Alberto Barreix, Anna Marenzi
Edited by Stefan W. Schmitz and and Paola Profeta
Geoffrey E. Wood
46 The Dynamics of Organizational
36 The Lender of Last Resort Collapse
Edited by Forrest H. Capie and The case of Barings Bank
Geoffrey E. Wood Helga Drummond
37 The Structure of Financial 47 International Financial
Regulation Co-operation
Edited by David G. Mayes and Political economics of compliance
Geoffrey E. Wood with the 1988 Basel Accord
Bryce Quillin
International Financial
Co-operation
Political economics of compliance
with the 1988 Basel Accord
Bryce Quillin
First published 2008
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
Simultaneously published in the USA and Canada
by Routledge
270 Madison Ave, New York, NY 10016
This edition published in the Taylor & Francis e-Library,2008.
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© 2008 Bryce Quillin
All rights reserved. No part of this book may be reprinted or reproduced or
utilized in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in
any information storage or retrieval system, without permission in writing
from the publishers.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
A catalog record for this book has been requested
ISBN 0-203-93028-2 Mastere-bookISBN
ISBN10: 0-415-77288-5 (hbk)
ISBN10: 0-203-93028-2 (ebk)
ISBN13: 978-0-415-77288-4 (hbk)
ISBN13: 978-0-203-93028-1 (ebk)
Contents
List of figures ix
List of tables x
Acknowledgments xii
List of abbreviations xiii
1 Introduction 1
PART I
Historical and theoretical perspectives on the 1988 Basel Accord 9
2 The political economy of the negotiation of the 1988
Basel Accord as a soft law agreement 11
3 Theorizing degrees of compliance with the Basel Accord 28
PART II
Quantitative studies 47
4 Measuring implementation and explanatory variables 49
5 Explaining implementation-quantitative tests 74
PART III
Case studies 93
6 Implementation of the Basel Accord in the United States 101
7 Implementation of the Basel Accord in Europe: the case of
France and Germany 123
viii Contents
8 Implementation of the Basel Accord in Japan 145
9 Conclusions and extensions 165
Notes 179
Bibliography 191
Index 205
Figures
1.1 The evolution of the Basel Committee and capital adequacy
regulation 7
2.1 G-10 banks’ capital asset ratios, 1970–1985 14
3.1 Convergence and divergence effects with a differentiated
compliance variable 32
3.2 Convergence and divergence effects with a binary compliance
variable 33
3.3 Dynamic convergence and divergence effects with a
differentiated compliance variable 34
5.1 CREG and PREBASEL index comparisons 77
6.1 Capital-to-assets ratios for the leading ten US banks: 1900–1980 104
6.2 Unweighted Tier1 capital-to-assets ratios for leading ten US
banks: 1988–2000 116
7.1 Unweighted Tier1 capital ratios for the leading ten French and
German banks, 1988–2000 143
8.1 Averages for G-10 countries’ major banks cost of equity,
1993–2001 148
8.2 Nikkei 225 index: 1985–2000 153
8.3 Aggregate market value of Japanese bank shares: 1985–2000 154
8.4 Capital adequacy ratios: 1988–1996 158