The paper draws some lessons from the 1997-1998 Asian financial crisis for G10
creditor banks and their supervisors, particularly in relation to the Basel Capital
Accord and the “Core Principles”. A number of recommendations are made
relating to the quantitative solvency requirements, the qualitative supervisory
review process, and some other areas. By way of background to these
recommendations, major differences with earlier emerging market crises are
identified, and significant differences in exposure between groups of Asian debtor
countries and groups of G10 creditor banks are highlighted. Although some
commentators have blamed the Basel Capital Accord for the evolution and the
nature of the exposure on Asian counterparties, it was difficult to establish
conclusive empirical evidence that the solvency rules caused distortions. The
working group identified a number of changes in the practice of supervisors, banks
and ratings agencies in the area of country risk measurement and management that
have already taken place in reaction to the crisis. However, some shortcomings in
the performance of the ratings agencies in the Asia crisis are noted, which may be
especially relevant if the regulatory use of ratings is to be increased in the future.
The paper draws some lessons from the 1997-1998 Asian financial crisis for G10
creditor banks and their supervisors, particularly in relation to the Basel Capital
Accord and the “Core Principles”. A number of recommendations are made
relating to the quantitative solvency requirements, the qualitative supervisory
review process, and some other areas. By way of background to these
recommendations, major differences with earlier emerging market crises are
identified, and significant differences in exposure between groups of Asian debtor
countries and groups of G10 creditor banks are highlighted. Although some
commentators have blamed the Basel Capital Accord for the evolution and the
nature of the exposure on Asian counterparties, it was difficult to establish
conclusive empirical evidence that the solvency rules caused distortions. The
working group identified a number of changes in the practice of supervisors, banks
and ratings agencies in the area of country risk measurement and management that
have already taken place in reaction to the crisis. However, some shortcomings in
the performance of the ratings agencies in the Asia crisis are noted, which may be
especially relevant if the regulatory use of ratings is to be increased in the future.
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