Basel II could reinforce economic cycles more than expected, says BIS study

The paper shows that the link between bank loan losses and the probability of the default on loans is likely to bring about a sharp increase in the “procyclicality” effect of the complex Basel II accord. Under the accord banks will be free to use their own estimates of the severity of the credit risk they face.Many national regulators have expressed fears that the risk-based Basel II accord, which global banking regulators hope will come into effect for major banks in late 2006, could exacer