An Institutional Approach to Understanding the Lack of Prudence in Rating by Bangladeshi External Credit Assessment Institutions (ECAIS)
Keywords:Basel accord, ECAI, Failure of omission, Moral hazard, RWA
The standardization of credit risk quantification methodologies under the Basel regulations has been promoted by Bangladesh Bank since 2009, where the Bangladeshi external credit assessment institutions (ECAIs) credit information has been expected to contribute to improved credit risk management by Bangladeshi banks and enhanced adequate capital buffer. However, the standardization seems not to bring positive outcomes to the banking industry in Bangladesh. This paper aims at investigating the ill-designed regulations for Bangladeshi ECAIs as the root cause of it, and to make sense of it under the failure of omission by the regulators. The study adopted an institutional approach and conducted in-depth interviews to investigate the research problem. This paper contributes to provide an alternative explanation for the highly accumulated non-performing loans in the regulated banks in Bangladesh.
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