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Question 15.11: Under Basel I, banks do not like lending to highly creditwor...

Under Basel I, banks do not like lending to highly creditworthy companies and prefer to help them issue debt securities. Why is this? Do you think this changed as a result of Basel II?

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Under Basel I, the capital charged for lending to a corporation is the same regardless of the credit rating of the corporation. This leads to a bank’s return on capital being relatively low for lending to highly creditworthy corporations. Under Basel II, the capital requirements of a loan are tied much more carefully to the creditworthiness of the borrower. As a result, lending to highly creditworthy companies became more attractive.

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