Impact of the 1988 Basle Accord on International Banks



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    • The author gratefully thanks René Stulz for his comments that substantially improved the empirical model and hypotheses tested in this paper, Edward Kane for his many thoughtful comments and insights that helped to focus and refine the research, and anonymous referees for their helpful suggestions that improved the paper's overall quality. The author also thanks James Ang, S. Kerry Cooper, Edward Deak, James L. Hamilton, James Kolari, Kelly Price, Hassan Tehranian, and seminar participants at Wayne State University, the 1993 Financial Management and Southern Finance Association meetings, and the 1994 European Financial Management Association meeting for their helpful comments on earlier versions of this article. An earlier version of this article was chosen the outstanding international paper at the 1993 Southern Finance Association meeting. The author also thanks Mary Dehner for her valuable editorial suggestions. Any remaining errors are the author's sole responsibility. The author acknowledges financial support from the School of Business Administration at Wayne State University.


The ostensible purpose of the Basle Accord was to standardize bank-capital regulations among the twelve leading industrial countries. Its ulterior goal was to “level the playing field” by eliminating a funding-cost advantage of Japanese banks that had allowed them to capture more than one-third of international lending. The wealth gain for Japanese bank shareholders was 31.63 percent. Wealth effects for shareholders of non-Japanese banks were not significant. These results suggest that the Basle Accord did not eliminate the pricing advantage of Japanese banks, challenging the non-Japanese regulators' contention that the regulation would help level the playing field.