The Basel Committee on Bank Supervision has proposed a set of new regulations, primarily aimed at improving capital adequacy and quality to increase the resilience of the banking industry, and to adopt a set of liquidity measures and controls to stem the accumulation of risk that had caused the last crisis. The proposals were consulted with the bank and financial institutions as well as other interested parties in the finance industry, but despite the clamor for tighter regulations, the proposals were generally poorly received. This study determined that the reason for this lies in the proposals’ tendency to micro-manage, to emphasize quantity at the expense of quality, to adopt general standards for all banks indiscriminately despite their fundamental differences, to introduce distortions that create disinformation, and to model the proposed standards after severe stress conditions not even experienced during the crisis. The results are expected to be greater cost-inefficiency, higher concentration risk, and poorer delivery of services by way of financial intermediation.
Chapter 1 introduces the research and the context in which it is conceived, its main research question and the objectives it sought to answer in order to arrive at a conclusion responsive to the research question; as well as the manner it carried out this inquiry. It also explains the importance of conducting research on the topic, and the significance of the conclusion to be arrived at.
The subprime mortgage crisis, strictly speaking, did not originate from the financial markets, but from the housing sector. If anything, the ultimate cause is traceable to faulty public policy on the manner of subsidizing housing for the lower income segments (Wachter, Pavlov & Pozsar, 2008). Logically, it should have affected the defaulting borrowers, the companies that enabled the mortgages, Fannie Mae and Freddie Mac, and the government that has given its guarantee, whether implicit or