Basel II: capital concerns

Basel II has forced banks, long the mainstay of lending to European corporates, to re-evaluate the amount of money they lend. However Alan McNee reports that far from leading to a huge drop in bank lending, Basel II may actually have the opposite effect.

The new Basel II bank capital adequacy accord represents perhaps the biggest change to banking regulation since 1988, when the current Basel I accord was endorsed. The new framework aims to tie bank regulatory capital more closely to the real risks banks face. Yet there is very little information on how the new rules will affect how much credit risk – both loans and bonds – banks hold. Just as uncertain is how the accord will affect the supply and demand of corporate bonds and credit derivatives