Closely connected to this endeavour is the debate on possible procyclical effects of Basel II. Undisputably, Basel II acts in a risk-sensitive manner and therefore responds cyclically to economic developments. However, this is a deliberate and very important feature of Basel II and should not be abandoned.
The question is, however, whether or not Basel II acts procyclically in the sense that the increase in capital requirements in times of financial stress or economic downturn is such that the resulting decrease in bank lending threatens to cause a downward spiral or a credit crunch.