Abstract:
In this article, 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, the
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 the 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.
