Basel II vs. Prompt Corrective Action: Which Is Best for Public Policy?
Article first published online: 19 DEC 2005
Financial Markets, Institutions & Instruments
Volume 14, Issue 5, pages 349–357, December 2005
How to Cite
Kaufman, G. (2005), Basel II vs. Prompt Corrective Action: Which Is Best for Public Policy?. Financial Markets, Institutions & Instruments, 14: 349–357. doi: 10.1111/j.0963-8008.2005.00111.x
- Issue published online: 19 DEC 2005
- Article first published online: 19 DEC 2005
This paper evaluates Basel II as a tool for achieving public policy objectives relative to structured early intervention and resolution (SEIR) and prompt corrective action (PCA) in the U.S. It concludes that Basel II compares poorly in terms of maintaining a safe and sound banking system. Rather, Basel II resembles a “best practices” guide for banks in managing their credit risk. However, it may do damage through encouraging some large banks in the U.S. to successfully pressure their regulators to lower the capital trigger ratio for “adequately-capitalized” status in order to benefit from any lower regulatory capital requirement that Basel II may give them.