The “Smart” Regulatory Features of Basel II and Basel III

The “Smart” Regulatory Features of Basel II and Basel III

DOI: 10.4018/978-1-4666-5950-6.ch005
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Abstract

This chapter explores the regulatory attributes of Basel II and Basel III. It demonstrates that the frameworks of Basel II and Basel III possess each of the benchmark attributes of the “third-way” regulatory approach to financial regulation. Owing to the demonstrated congruence between Basel II and Basel III and the benchmark attributes, this chapter concludes that Basel II and Basel III can clearly be viewed as an example of ‘smart’ financial regulation in the field of banking prudential control.
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Introduction

As soon as the Basel II- international capital adequacy requirements framework was released, it attracted the attentions of regulators, bankers and market participations who sought to explore its effectiveness in stabilizing financial markets, enhancing the competitive advantage of banks, and protecting shareholders and stakeholders. Particularly after the Global Financial Crisis, certain issues were exposed that raise questions about the effectiveness of Basel II and Basel III in preventing any future happening of a similar disaster, and about its ability to stabilize economies.

To properly evaluate Basel II and Basel III, the core intention of this research, the first step should go towards closely understanding and evaluating the framework of these two new Basel Accords. So in this section, drawing on the history of regulatory strategies (command-and-control and self-regulation debate); and utilizing the new regulatory paradigm represented by the three concepts—reflexivity; responsive regulation and smart regulation, a foundational dichotomy1 is developed and used as a benchmark to evaluate the Basel II and Basel III’ frameworks. This approach provides the first part of the answer to the research question—how ‘smart’ is Basel II and III in the context of the Australian banking system.

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