Evaluation of Basel criteria for the international banking system

Destan Kirimhan
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Destan Kirimhan: Başkent University, Ankara, Turkey

Theoretical and Applied Economics, 2014, vol. XXI, issue Special, 363-378

Abstract: International banking system is regulated mainly with the help of Basel criteria to ensure robustness, stability and competitiveness. This paper aims to evaluate Basel criteria via a structural framework in terms of whether these criteria achieve this goal. It is observed that possibility of supervision arbitrage, large implementation period and internal models of banks are the negative aspects of these criteria for conventional banking system. On the other hand, unconventional banking system needs high volume and liquid secondary markets to achieve liquidity requirements of these criteria. Moreover, interest rate and default risks are mitigated within unconventional banking system to a large extent however; conventional banking system requires a new regulation set. Therefore, Basel III criteria cannot be evaluated as comprehensive and complete set of directions and these criteria are required to be redesigned by bank regulating authorities.

Keywords: Basel criteria; conventional banking system; unconventional banking system. (search for similar items in EconPapers)
Date: 2014
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