Which of the following bad bank behaviors at emerging market banks may result from the implementation of Basel II?
I. Underestimation of risk and required capital for emerging market banks. II. Increased pro-cyclical lending. III. Tendency to not switch to advanced risk measurement methodologies.
A. I and II. B. I, II, and III. C. II and III. D. I and III.
Since some parameters are calibrated on G-7 banks, they tend to underestimate the risk at emerging market banks. Pro-cyclicality is a bad behavior at all banks, which includes emerging markets.
