Evolution of the Agreements of Basle: Diagnosis of the Standards of Bank International Regulation

Abstract

Financial globalization has shown its dark side in the latest world economic crisis. The critical initial phase of rescuing ailing institutions, and reestablishing the flow of credit, has been surpassed. National and international financial authorities must review the actual regulation and supervision that promoted, or at least allowed, excessive risk taking by market agents. The objective of this paper is to present a preliminary, and joint, diagnosis of the current weaknesses of the international banking regulatory and supervisory framework; exploring in depth the evolution of the principles established by the Basel Committee. We analyze the content of rules and regulations; the internal process established by institutions to implement them, and the efficacy of different authorities in guaranteeing their fulfillment; underlining the role of the different agents involved, their incentives, and information hindrances. We include some insights on the additional challenges that emerging markets will face in stabilizing and regulating their financial markets.