29 April 2004

Basel II - Study on financial and macroeconomic consequences

The Commission published the report on the consequences of the intended new capital requirements framework for all sectors of the European economy with particular attention to SMEs. The study was carried out by PriceWaterhouseCoopers

The study examined the impact of the proposed capital requirements on the balance sheet of the financial sector of the EU, and considered how this could affect the behaviour of the financial sector.

The variation in the change in capital requirements for banks under Pillar 1 of the Basel II proposals can be significant, both at the level of individual financial institutions and at country level. At the national level, most countries are clustered between a decrease in capital requirements of about 10% and an increase of about 2%.

The impact on an individual financial institution will depend largely on the composition of its business, and the approach that it takes to the calculation of regulatory capital. Banks that engage in lending to SMEs and those that lend to retail customers should see falling capital requirements for credit risk.

Banks whose balance sheets are dominated by lending to sovereigns, large corporations and investment banking business will see few, if any, reductions in regula-tory capital requirements.

Study
Annes

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