Press Release

Beyond Pillar 3 in International Banking Regulation: Disclosure and Market Discipline of Financial Firms

September 21 , 2004
Note To Editors

The latest edition of the Federal Reserve Bank of New York’s Economic Policy Review is available. Beyond Pillar 3 in International Banking Regulation: Disclosure and Market Discipline of Financial Firms contains the proceedings of a conference cosponsored by the Federal Reserve Bank of New York and the Jerome A. Chazen Institute of International Business at Columbia Business School, held on
October 2-3, 2003.

The Basel II Accord, the new bank regulatory regime now in final development, rests upon three pillars: 1) adequate bank capital, 2) supervisory review of bank capital, and 3) disclosure and market discipline of banks. The first two pillars have been highly scrutinized already, hence the focus here on Pillar 3: disclosure of information about prospects and risks by banks to investors and the discipline that investors apply in response.

A theme emerged from several papers: the strength of investor discipline depends on supervisory discipline, and vice versa. If investors can expect supervisors to take prompt corrective action toward troubled banks, supervisors can rely on investors, via signals from bank bond and stock prices, to help identify those banks.

Contents of the volume:

Commentary: Darryll Hendricks of the Federal Reserve Bank of New York; Jeremy C. Stein of Harvard University

Beyond Pillar 3 in International Banking Regulation: Disclosure and Market Discipline of Financial Firms ››

Contact:
Linda Ricci
(212) 720-6143
linda.ricci@ny.frb.org