The New Basel Capital Accord (Basel II) from a Macroeconomic Point of View

The current capital accord ("Basel I") has been found inadequate in strengthening the stability of the international banking system. Its undifferentiated and inexact registration of credit risks and the breakneck pace of introducing innovative financial tools have greatly impaired its effectiveness. The new capital proposals prepared by the Basel Committee on Banking Supervision ("Basel II") provide, i.a., for improved methods of risk evaluation, which, however, may trigger undesirable effects at a macroeconomic level. Such effects may reach dimensions that could well endanger the aim of achieving a sustained strengthening of the international financial system.