In short, Basel II will bring A-IRB banks' regulatory capital charges more in line with the capital charges they have, through arbitrage, already obtained. The second reason minimum regulatory capital requirements are unlikely to significantly affect competitive behavior is that most well managed banks carry sizable excess capital buffers.
Smaller banks in particular, operating with less leverage than larger banks, hold substantial excess regulatory capital, which reflects their lack of diversification and more limited access to funding. Basel II will not change that fact. Under Basel II, small banks will continue to hold more capital than A-IRB banks, but A-IRB banks' true risk-based capital positions will be measured more accurately.