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Journal of Financial Intermediation Vol. 13 No. 2 2004

The three pillars of Basel II: optimizing the mix

Jean-Paul Décamps; Jean-Charles Rochet1; Benoı̂t Roger2

1 London School of Economics and Political Science · 2 University of Toulouse (GREMAQ and IDEI), Toulouse, France

Abstract

The on-going reform of the Basel Accord relies on three “pillars”: a new capital adequacy requirement, supervisory review and market discipline. This article develops a simple continuous-time model of commercial banks' behavior where interaction between these three instruments can be analyzed. We study the conditions under which market discipline can reduce the minimum capital requirements needed to prevent moral hazard. We also discuss regulatory forbearance issues.

DOI
10.1016/j.jfi.2003.06.003
Volume
13
Issue
2
Pages
132-155
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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