In a downturn, probabilities of default increase – along with the minimum capital requirements. Similarly, fair value accounting means that valuations fluctuate in tandem with market prices. Let me start with possible procyclical elements in the Basel II framework. So far, it is unclear – and how could it possibly be otherwise so soon after the introduction of Basel II?
– whether the cyclical fluctuations of the minimum capital requirements actually impact on the propensity to lend – in other words, whether they really have a procyclical effect.