But at bottom, I would argue, we are beginning to see the payoff from more-formal and rigorous quantitative risk-management techniques for credit decisionmaking, techniques that have also been central to the development of new instruments for hedging, mitigating, and managing credit risk. Basel II builds on and formalizes these developments in bank credit risk management.
Such a regime of greater formal attention to risk exposures, as under Basel II, offers the hope of a more stable pattern of credit availability. Quantitative risk management should reduce the buildup of excessive unintended credit risks that have been assumed in expansions and thereby minimize the losses and associated tighter lending standards during recessions.