Abstract:
Though increased number of countries are taking radical steps towards converging their
banking regulations with the recommendations made by the Basel Committee on Banking
Supervision (BCBS), underlying unique characteristics of respective country’s socioeconomic
background and the suitability of such recommendations for them have been
largely neglected during the process of adoption and implementation. We argue that banking
regulators under the Basel regulatory framework could benefit from the capital requirements
in terms of reducing the likelihood of insolvency of banks, but these standards have possible
ill-effects for other important objectives of banking regulations, in particular, Basel
framework does not necessarily contribute to the improvement of financial intermediation
and accumulation of credit risk management skills in the monitoring process. Moreover, blind
adoption of Basel regulatory framework in most of the developing countries, where the
preconditions are largely absent, creates adverse consequences on economic activity. We
raise related experiences from Japan, Indonesia and Sri Lanka.
