Cross-border challenges The challenges discussed above become more pronounced in a cross-border environment. One of the main benefits of Basel II is to provide a common language to banks and regulators to communicate about risks embedded in an entity or transaction globally. However the difference in readiness across countries would make this quite difficult to achieve.
The differences in preparedness of banks would hinder information sharing across sectors and across borders. Moreover, this may also create restriction in credit flow from banks of developed countries into the emerging economies, because these banks may be discouraged due to high capital allocation for such investment.