Banking on Basel ─ The Future of International Financial Regulation

Tarullo (Georgetown U. Law Center) analyzes the likely impacts of the Revised Framework on International Convergence of Capital Measurement and Capital Studies (a.k.a. Basel II). He considers whether an international effort at regulatory convergence around Basel II's bank capital rules will produce greater benefits for the United States than viable policy alternatives. He addresses this question through interrelated analysis of the following: the rules for domestic bank capital regulation in Basel II, arguing that the internal ratings-based (IRB) approach of Basel II, developed during the negotiations and essentially untested, represents, at best, a leap of faith; the contribution of the specifically international character of Basel II to achieving national policy goals, suggesting that the introducing the IRB approach as a basis for domestic regulation exposes more and more countries to infirmities, while the difficulties of effective monitoring of implementation limits benefits from common adoption; and comparison of alternatives, including the status quo. In the end he argues for a simpler and more eclectic international arrangement than Basel II. Annotation c2009 Book News, Inc., Portland, OR (booknews.com)

Professor of Law at Georgetown University Law Center.