The capital requirements should be a function of risk taken, and, under Basel II, if the two banks had very similar loans, they both should have a very similar required capital charge. For this reason, competitive equity among Basel II banks in this country should not be a genuine issue because capital should reflect risk taken.
Given the many common challenges that we have faced in the central banking community over this period, it is perhaps unsurprising that I find myself in large agreement with the paper’s main arguments.