Basel II: The Remaining Issues. CEPS Policy Brief No. 13, March 2002

[From the Introduction]. ...the BCBS has wisely decided to prolong the consultation period for another year, so that the final draft Accord is expected by the end of 2002. It is to be hoped that these potential problems of the new Accord are solved by then. In this context, it is the aim of this paper to briefly outline four issue-areas that must be addressed before the new Accord can be implemented with confidence. After a broad outline of the current state of the proposals in section one, each area will be discussed in turn. Thus, the second section focuses on the issue of a potential decline in the overall capital holdings and hence in the level of protection against systemic risk. The third section then considers the strong procyclical effect that the new proposals are likely to have. Section four looks at the various adverse consequences the Accord may have for developing countries, and the fifth section outlines the potential impact on the structure of the banking industry. Section six concludes.