Emerging problems with the Basel Capital Accord: Regulatory capital arbitrage and related issues
نویسنده
چکیده
In recent years, securitization and other ®nancial innovations have provided unprecedented opportunities for banks to reduce substantially their regulatory capital requirements with little or no corresponding reduction in their overall economic risks ± a process termed ``regulatory capital arbitrage''. These methods are used routinely to lower the eective risk-based capital requirements against certain portfolios to levels well below the Basel Capital AccordÕs nominal 8% total risk-based capital standard. This paper discusses the principal techniques used to undertake capital arbitrage and the diculties faced by bank supervisors in attempting to deal with these activities under the current capital framework. Ó 2000 Elsevier Science B.V. All rights reserved. JEL classi®cation: G18; G21; G28
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