Reforming the Basel Accord and the Use of Subordinated Debt
Making Markets Work for the Regulator
This chapter argues that the implementation of subordinated debt and of Basel II could be significant moves toward the goal of enhancing the effectiveness of market discipline. Both proposals would allow for a more accurate pricing risk and an increase in transparency by making more information readily available, and both would also make risk takers more accountable for their activities. The chapter begins by looking at the Basel II and subordinated debt proposals. It then turns to some of the difficulties that have been raised with their implementation, especially on a technical level. The chapter concludes by discussing some of the competitive and coordination issues that underlie many incentive-based approaches to financial regulation.
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