Basel and the IASB: Accountability Interdependencies and Consequences for Prudential Regulation

<jats:title>ABSTRACT</jats:title> <jats:p>Accountability is a key concern for international standard setters. If transnational actors set standards instead of national democratic authorities, then the standard setters might suffer from ‘apparent’ deficits in their democratic accountability and oversight. Consequently, most international standard setters rely on different processes to enhance their accountability and transparency to mitigate concerns about their own standards. Ensuring accountability is already a major challenge for a single or homogenous set of rules or standards. So how can a supranational body design legitimate rules that rest on the standards of another very different supranational standard setter? This study examines the accountability and transparency concerns from the interaction of supranational standard setters that have different objectives. Therefore, I investigate the processes of prudential regulation based on the capital adequacy standard of the Basel Committee on Banking Supervision that relies on the financial accounting standards set by the International Accounting Standards Board. The results show flaws with respect to accountability in the regulatory process that involves another standard setter and how the prudential regulator reacts to these flaws to ensure a higher degree of accountability in its banking regulation.</jats:p>