Basel II may increase cyclical swings, says the adviser to the governor at the bank of England

Cyclicality was considered late in Basel II negotiations, and while it needs to be kept under review, it is too early to propose policy changes.

Cyclical swings in behaviour have a good chance of being an unwanted side-effect of Basel II, said the adviser to the governor of the Bank of England. Speaking at the China International Banking Convention, Alastair Clark pointed out that while the full effects will be unknown until Basel II is put into practice, the situation needs to be carefully monitored.

Clark pointed out that under Basel II, both the bank’s capital and its risk-weighted assets fluctuate with the economic cycle, the effects