Basel II may feed volatility

Despite recognising that the new Basel accord is "widely viewed as a much needed effort to deal with the shortcoming of the current system", a recent working paper* by the Bank of England (BoE) raises new concerns about how the accord may exacerbate economic volatility over the business cycle.

The main thrust of author, Lea Zicchino's, argument is that under the new capital requirement framework, banks will face a double whammy during periods of economic downturn: at the same time that their loan

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