Quantitative Risk Management: A Practical Guide to Financial Risk, + Website

3.5 Brief Overview of Regulatory Issues

Regulation is important not only because firms must operate within the rules set by regulators but also because banking regulation has been a major driver of innovation and adoption of risk management procedures at many institutions. Two problems, however, make it difficult to provide a complete treatment here. First, it is outside my particular expertise. Second, and more important, the topic is changing rapidly and dramatically; anything written here will be quickly out of date. The response to the global financial crisis of 2008–2009 has already changed the regulatory landscape and will continue to do so for many years to come. I will provide only some background, with references for further exploration.

Many texts cover bank regulation, and although these treatments are not current, they do provide background on the conceptual foundations and history of banking regulation. Crouhy, Galai, and Mark (2006) discuss banking regulation and the Basel Accords in Chapter 3 and mid-2000s legislative requirements in the United States regarding corporate governance (the Sarbanes-Oxley Act of 2002) in Chapter 4. Marrison (2002, ch. 23) also covers banking regulations.

Globally, the Basel Committee on Banking Supervision (BCBS) is the primary multilateral regulatory forum for commercial banking. The committee was established in 1974 by the central bank governors of the Group of Ten (G-10) countries. Although the committee itself does not possess formal ...