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Inadequacy of Nation-Based and VaR-Based Safety Nets in the European Union

Edward Kane

No 12170, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Considered as a social contract, a financial safety net imposes duties and confers rights on different sectors of the economy. Within a nation, elements of incompleteness inherent in this contract generate principal-agent conflicts that are mitigated by formal agreements, norms, laws, and the principle of democratic accountability. Across nations, additional gaps emerge that are hard to bridge. This paper shows that nationalistic biases and leeway in principles used to measure value-at-risk and bank capital make it unlikely that the crisis-prevention and crisis-resolution schemes incorporated in Basel II and EU Directives could allocate losses imbedded in troubled institutions efficiently or fairly across member nations.

JEL-codes: G21 G28 P51 (search for similar items in EconPapers)
Date: 2006-04
New Economics Papers: this item is included in nep-cba, nep-fin, nep-fmk and nep-rmg
Note: CF ME
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Published as Kane, Edward. "Inadequacy of nation-based and VaR-based safety nets in the European Union." The North American Journal of Economics and Finance 17, 3 (December 2006): 375-387.

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