Did Bank Capital Regulation Exacerbate the Subprime Mortgage Crisis?

Table 2

Main differences between Basel I and II.

Focus	Basel I	Basel II
Risk measure	Single risk measure	Counterparty and transaction specific risk measures
Risk sensitivity	Broad brush approach	Granularity and risk sensitivity
Credit risk mitigation	Limited recognition	Comprehensive recognition
Operational risk	Excluded	Included
Flexibility	One size fits all	Menu of approaches
Supervisory review	Implicit	Explicit
Market discipline	Not addressed	Supervisory role conferred on market
Incentives	Not addressed	Explicit and well defined
Economic capital	Divergence	Convergence