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  • December 2002 (Revised January 2004)
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Basel II: Assessing the Default and Loss Characteristics of Project Finance Loans (A)

By: Benjamin C. Esty and Aldo Sesia
  • Format:Print
  • | Pages:23
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Abstract

In June 1999, the Basel Committee on Banking Supervision announced plans to revise the capital standards for banks. The Basel Committee believed that project loans were significantly riskier than corporate loans and, therefore, warranted higher capital charges under the new proposal (known as Basel II). Bankers, fearing that higher capital charges would damage project lending by lowering profits and driving borrowers to nonbank competitors, formed a consortium to oppose the proposal by studying the actual default and loss characteristics of their combined portfolios of project loans. The study showed that project loans were not riskier than corporate loans. Armed with this data, the consortium sent a letter to the Basel Committee in August 2002 urging them to lower the proposed capital charges on project finance loans.

Keywords

Risk and Uncertainty; Project Finance; Financing and Loans; Projects; Standards; Banks and Banking; Banking Industry

Citation

Esty, Benjamin C., and Aldo Sesia. "Basel II: Assessing the Default and Loss Characteristics of Project Finance Loans (A)." Harvard Business School Case 203-035, December 2002. (Revised January 2004.)
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About The Author

Benjamin C. Esty

Finance
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Related Work

    • January 2004 (Revised April 2005)
    • Faculty Research

    Basel II: Assessing the Default and Loss Characteristics of Project Finance Loans (B)

    By: Benjamin C. Esty and Aldo Sesia
Related Work
  • Basel II: Assessing the Default and Loss Characteristics of Project Finance Loans (B) By: Benjamin C. Esty and Aldo Sesia
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