Daníelsson, J. (2002, September). On the feasibility of risk based regulation.
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Risk based regulation has emerged as the primary ingredient in the Basel-II proposals, where a bank capital is to become a direct function of a bank's riskiness. While the notion that bank capital be risk sensitive is intuitively appealing, the actual implementation, in the form of Basel-II, carries with it a host of potentially perverse side effects. Basel-II may increase financial risk, both for individual institutions and the entire banking system, and hence promote financial instability. This can happen, e.g., due to the endogenous nature of risk.
@MISC{Danielsson2002b,
author = {J{\'o}n Dan{\'\i}elsson},
title = {On the feasibility of risk based regulation},
year = 2002,
url = {RiskResearch.org},
}