The international capital-adequacy framework, known as Basel II, will help improve risk management in the global financial services sector, Standard & Poor’s said in two reports (“The Essentials of Basel II” and “Basel II: Evolution not Revolution for Banks”). “Basel II will reinforce certain major movements already well underway in the industry,” said Standard & Poor’s. “Notably the shift from corporate to retail lending, the growing proportion of trading in the business mix, the increasing tendency of banks to originate then sell loans, and the acquisition of smaller players by large, diversified financial conglomerates.” The reports explained that if the Basel II framework were to be applied today, the risk-weighted assets and regulatory capital requirements of most banks could fall, in some cases substantially. Banks that specialize in mortgage lending and consumer finance are set to receive the greatest proportional capital relief under Basel II. The national bank supervisors who will implement Basel II, however, may find a way to maintain the current capital levels in the industry through the parts of the framework that are left to their discretion.
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