SUMMARY
In April 2003 the Basel Committee on Banking Supervision issued a third consultative paper on the new Basel Capital Accord (Basel II). The document contains substantial changes with respect to the previous proposal of January 2001, on which improvements were requested, among other aspects, regarding the too severe treatment foreseen for loans to small and medium sized enterprises (SMEs). The aim of this paper is to analyse the treatment of SME loans under the Basel II framework and to provide an empirical evaluation of the impact of the different proposals on a large hypothetical portfolio of Italian corporations. Our simulations indicate that the prudential treatment of SME loans foreseen in the last consultative document of the Basel Committee is not penalizing with respect to the current situation. Therefore, we should not expect a reduction of credit or an increase in interest rates on loans to this type of borrowers. JEL Codes: G21, G28, G30, L25