A comparison of capital standards and proprietary surveillance as mechanisms for regulating financial market risk in the EU
✍ Scribed by Michael Bowe; Maximilian J.B. Hall
- Publisher
- John Wiley and Sons
- Year
- 1998
- Tongue
- English
- Weight
- 239 KB
- Volume
- 3
- Category
- Article
- ISSN
- 1076-9307
No coin nor oath required. For personal study only.
✦ Synopsis
The EC's Capital Adequacy Directive (CAD) and the 1995 Basle Committee (BC) proposals are analysed as approaches to regulating market risk. We derive conditions under which the BC's proposal, namely supplementing a CAD-type standardized risk measurement framework with proprietary procedures subject to market surveillence, enhance regulatory efficiency. We demonstrate that the BC's approach enhances efficiency, unless asset deficiencies imply an institution has insufficient incentives to effectively implement proprietary procedures. Moreover, the CAD's dual objective, namely ensuring the prudential safety of, and promoting competitive equality in, the financial services market cannot be reconciled without imposing restrictive assumptions on the regulator's information set.