Basel II: A Contracting Perspective

Edward Kane

No 12705, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Financial safety nets are incomplete social contracts that assign responsibility to various economic sectors for preventing, detecting, and paying for potentially crippling losses at financial institutions. This paper uses the theories of incomplete contracts and sequential bargaining to interpret the Basel Accords as a framework for endlessly renegotiating minimal duties and standards of safety-net management across the community of nations. Modelling the stakes and stakeholders represented by different regulators helps us to understand that inconsistencies exist in prior understandings about the range of sectoral effects that the 2004 Basel II agreement might produce. The analysis seeks to explain why, in the U.S., attempting to resolve these inconsistencies has spawned an embarrassingly fractious debate and repeatedly pushed back Basel II's scheduled implementation.

JEL-codes: G21 G28 G33 (search for similar items in EconPapers)
Date: 2006-11
New Economics Papers: this item is included in nep-reg
Note: CF
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Citations: View citations in EconPapers (5)

Published as Edward Kane, 2007. "Basel II: A Contracting Perspective," Journal of Financial Services Research, Springer, vol. 32(1), pages 39-53, October.
Published as Edward J. Kane, 2007. "Basel II: a contracting perspective," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 396-414.

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Journal Article: Basel II: A Contracting Perspective (2007)
Working Paper: Basel II: a contracting perspective (2007)
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