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From Basel to bailouts: forty years of international attempts to bolster bank safety

Published online by Cambridge University Press:  09 October 2015

Christopher Kobrak  and
Michael Troege
Christopher Kobrak*
Affiliation:
Rotman School of Management, University of Toronto and ESCP Europe
Michael Troege
Affiliation:
ESCP Europe
*
C. Kobrak (corresponding author), Wilson/Currie Chair of Canadian Business and Financial History, Rotman School of Management, University of Toronto, 105 St George Street, Toronto, CanadaM5S 3E6; email: [email protected].
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Abstract

This article reinterprets the origin and evolution of the Basel Accords. We argue that the Basel I paradigm was very different from the regulatory approaches that had been applied successfully in most European countries since the Second World War. Banking systems relied on a multitude of tools including entry restrictions, liquidity rules, reserve requirements, deposit rate ceilings, lending and investment restrictions, combined with hands-on supervision and discretional interventions. By focusing exclusively on capital adequacy and credit risk, Basel I shifted attention in a very different and somewhat unexpected direction. The Basel regulations are often understood as a reaction to the bank failures of the 1970s and 1980s, but in fact their capital adequacy rules would not have prevented these failures. Indeed, even today, several of these risks are still not addressed by Basel updates, suggesting that the original and current proposals have a rather different raison d’être, placating political constituencies and banking interests.

Keywords

banking crisesprudential regulationcapital adequacyBasel I

JEL classification

G28: Government Policy and Regulation N20: General, International, or Comparative
Type
Articles
Information
Financial History Review , Volume 22 , Issue 2 , August 2015 , pp. 133 - 156
Copyright
Copyright © European Association for Banking and Financial History e.V. 2015 

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References

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www2.fdic.gov/hsob/SelectRpt.asp?EntryTyp=30&Header=1 Historical Statistics on Banking (HSOB), Failures & Assistance TransactionsGoogle Scholar

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