The Political Economy of Global Financial Governance: The Costs of Basle II for Poor Countries

Stijn Claessens (), Geoffrey Underhill and Xiaoke Zhang
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Geoffrey Underhill: University of Amsterdam
Xiaoke Zhang: University of Nottingham

No 15, WEF Working Papers from ESRC World Economy and Finance Research Programme, Birkbeck, University of London

Abstract: The 1990s financial crises triggered many changes to the design of the international financial system, the so-called international financial architecture. While much affected, developing countries have had very little influence on the changes, which the formulation of the new Basle capital accord (B-II) illustrates. The article shows that B-II has largely been formulated to serve the interests of powerful market players, with developing economies being left out. For developing countries, B-II can make domestic financing more costly and raise the costs of and reduce the access to external financing. Importantly, B-II can exacerbate fluctuations in the supply of external financing, an unfortunate outcome, given that developing countries already suffer from volatility.

Keywords: Basle Committee; capital adequacy; financial governance; financial architecture; financial reform; international standards; capital flows; poor countries; cost of capital; international development (search for similar items in EconPapers)
Date: 2006-11
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Citations: View citations in EconPapers (2)

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