Basel and the cyclical behaviour of bank capital

In this Bank of Canada Working Paper "The New Basel Capital Accord and the Cyclical Behaviour of Bank Capital" the authors conduct a counterfactual simulation of the proposed rules under the new Basel Capital Accord (Basel II).

When the authors apply the simulation to Canadian banking system data over the period 1984-2003, they find that capital requirements for banks will likely fall in absolute terms even after allowing for the new operational risk charge (bearing in mind that the induced

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