Transition From Basel I to Basel II, Intensification or Debilitation of Recessionary Conditions?

In this article, an attempt is made to draw an appropriate horizon of real behavior of regulatory capital in business cycles, through examining the characteristics of credit rating methods used for calculation of regulatory capital ratio under the Basel II capital accord in pari passu with empirical evidences. In fact, comparing regulatory capital behavior under Basel I and Basel II capital accords, confirms the potential capacity of the Basel II capital accord for intensifying the business cycles. In addition, according to the results extracted from the case of Canada -as one of the few countries which applied Basel II with wider range of seasonal data at disposal for survey- it is observed that the probability of business cycles intensification by applying the IRB approach and under the PIT rating method, could be higher, compared to other.