Journal Article

Rebalancing the three pillars of Basel II

Abstract: The author observes that the three pillars of Basel II seem uneven: Pillars 1 and 2 have eclipsed Pillar 3 - market discipline and disclosure - in the Basle Committee's deliberations. He works through a banking model of the three Pillars, shows how the optimal liquidation limit varies with bank liability structure and the regulatory regime, and argues that market discipline, via mandatory subordinated debt issuance, can reduce forbearance by supervisors.

Keywords: Bank capital; Banking law; Bank supervision;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Economic Policy Review

Publication Date: 2004

Issue: Sep

Pages: 7-21

Order Number: v. 10 no.2