A vicious circle

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Critics of Basel II have long argued the rules are inherently pro-cyclical. The risk-sensitive nature of the framework means capital requirements would fall in a boom, yet rise in a downturn - a feature some claimed would force banks, facing severe capital constraints, to cut back lending in any recession, further aggravating the slump. The financial crisis has meant tackling this issue has taken on a sudden urgency. In March, the Basel Committee on Banking Supervision declared it intends to

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