Levelling the playing field in international financial markets: The Basel Accord revisited

The framework for financial services provision in a global context cannot ignore the issue of competition nor even consider it in isolation. Moreover, in the financial sector the level and degree of competition often necessitates balancing an assorted array of issues from arguments for static and dynamic efficiency to minimising rent‐seeking activities through proper supervision. In the end, it is design and implementation of laws and regulations which to a large degree can determine the stability and efficiency of financial markets both on national and international levels. As theoretical and empirical evidence has long indicated, however, there is a trade‐off betweeen assuring safety and soundness of resources. This paper argues that the operation of the financial sector as a whole will not be as effective if market discipline is relied upon to promote fair competition within financial markets as suggested in the 1999 Basel proposals.