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The Procyclical Effects of Basel II
2007
Social Science Research Network
The Procyclical Effects of Basel II* We analyze the cyclical effects of moving from risk-insensitive (Basel I) to risksensitive (Basel II) capital requirements in the context of a dynamic equilibrium model of relationship lending in which banks are unable to access the equity markets every period. Banks anticipate that shocks to their earnings as well as the cyclical position of the economy can impair their capacity to lend in the future and, as a precaution, hold capital buffers. We find that
doi:10.2139/ssrn.973783
fatcat:jrfpszgpwrcobbcoc5avj565du