The global effects that Basel II will have are not yet clear-cut. Side effects are unknown. However, a two-tier banking world is likely to emerge from the Basel II banking regulations, where there will be those who are in the fast-track for Basel compliance (more regulation and lower risk), versus those banks in the slow lane of compliance. These “slower” banks will have less regulation but more risk, even if they are guarded by more regulatory capital.
This is the possible outcome that there will be a two-tier banking system in the Basel domain:
Fast-track: Advanced banks doing well with lower capital requirements, excellent risk management and risk reporting systems. They will thrive in the new markets.
Slow-track: Other banks, slightly paralysed by higher capital reserves and regulatory requirements, will need to install more sophisticated risk management and risk reporting systems. The market perception of them can be negative (i.e. more risky banks or funds), so they can be doubly penalised by lower credit ratings /raised insurance premiums and lower customer respect.
More likely, there will be a large middle ground of banks and funds that are muddling along, not excelling themselves in advanced Basel II risk classifications, trying to find a niche.