Levelling the playing field in international financial markets: The Basel Accord revisited
| DOI | https://doi.org/10.1108/eb025060 |
| Pages | 38-41 |
| Date | 01 January 2001 |
| Published date | 01 January 2001 |
| Author | Rahul Dhumale |
| Subject Matter | Accounting & finance |
Levelling the playing field in international
financial markets: The Basel Accord
revisited
Rahul Dhumale
Received (in revised form): 11th January, 2000
Federal Reserve Bank of New York, 33 Maiden Lane, New York, NY 10045, USA;
e-mail: Rahul.Dhumale@ny.frb.org
Journal of Financial Regulation and Compliance Volume 9 Number 1
Dr Rahul Dhumale was formerly a faculty
member at Cambridge University and is
presently at the Federal Reserve Bank of
New
York.
The views expressed in this
paper are entirely those of the author and
should not be attributed in any manner to
the Federal Reserve Bank of New
York,
Federal Reserve System, or Cambridge
University.
ABSTRACT
The framework for financial
services
provision
in a global context cannot ignore the issue of
competition nor even consider it in isolation.
Moreover, in the financial sector the level and
degree of competition often necessitates balan-
cing an
assorted
array of
issues
from arguments
for static and dynamic efficiency to minimising
rent-seeking activities through proper supervi-
sion.
In the end, it is design and implementa-
tion of laws and regulations which to a large
degree can determine the stability and efficiency
of financial markets both on national and
international levels. As theoretical and empiri-
cal evidence has long indicated, however, there
is a trade-off betweeen assuring safety and
soundness of
resources.
This paper argues that
the operation of the financial sector as a whole
will not be as effective if market discipline is
relied upon to promote fair competition within
financial markets as suggested in the 1999
Basel proposals.
The framework for financial services pro-
vision in a global context cannot ignore
the issue of competition nor even consider
it in isolation. In many ways, this epito-
mises the crucial difference between the
financial sector and others where unfettered
competition can often be the first best solu-
tion from efficiency, stability and growth
perspectives. In the financial sector, how-
ever, the level and degree of competition
often necessitates balancing an assorted
array of issues from arguments for static
and dynamic efficiency to minimising rent-
seeking activities through proper supervi-
sion. In this regard, laws and regulations
direct the set of permissible activities for
financial and non-financial institutions,
control the different degrees of competition
and contestability, and define in a signifi-
cant way the framework under which
financial intermediation takes place by pro-
viding the necessary enforcement and exit
rules.
In the end, it is the design and imple-
mentation of these laws which to a large
degree can determine the stability and effi-
ciency of financial markets both on
national and international levels. As theore-
tical and empirical evidence has long indi-
cated, however, there is a trade-off
between assuring safety and soundness of
financial institutions and fostering an effi-
cient allocation of resources. This paper
Journal of Financial Regulation
and Compliance, Vol. 9, No. 1.
2001.
pp.
38-41
© Henry Stewart Publications,
1358-1988
Page 38
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