Because banks engage in regulatory arbitrage,the Basel Accord on risk-based capital requirements may result in

Question

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Regulatory arbitrage refers to the practice of banks finding ways to circumvent regulations or take advantage of regulatory loopholes to minimize their capital requirements and maximize profits. In the context of the Basel Accord, banks may increase their risk-taking activities to achieve higher returns on equity, while reducing their overall capital reserves. Therefore, the Basel Accord may actually lead to increased risk taking by banks, rather than reduced risk.

Because Banks Engage in Regulatory Arbitrage,the Basel Accord on Risk-Based