Alliance & Leicester is not usually regarded as a pioneer, but the £5 billion mortgage lender stole a march on its peers this week by becoming the first quoted British bank to comply with Basle II, the new regulatory capital regime.

International risk capital accords are a subject that can make the eyes of even the most conscientious professional investor glaze over and, in this regard, Basle II — a measure devised by the Swiss-based G10 banking committee that has been eight years in the making — is little different.

Yet there is reason to believe that this attitude will change in the coming weeks and months. With the UK banks’ reporting season just weeks away — Northern Rock goes first on January 24 — the potential impact of Basle II is a topic on which their finance directors will be keenly quizzed. Indeed, given that Britain is embracing the accord a year ahead of the rest of Europe, and two years before the United States, its experience will be watched closely around the world.

Of more immediate interest to shareholders, however, is the prospect that it will release a wall of money in their direction.

The key refinement of Basle II over its predecessor, launched in 1988, is to align more closely a bank’s capital requirements with the risks that it takes.

In short, banks engaged in activities deemed to be low-risk, such as mortgage lending, will have to put less capital aside to satisfy regulators and should have more scope to raise dividends or buy back shares.

Conversely, banks exposed to wholesale markets and corporate debt trading — businesses judged to be higher-risk — will have to give themselves a bigger capital cushion to comfort their overseers, leaving less cash to distribute.

On that view, it is hardly surprising that A&L chose to break cover first. Under most yardsticks, the Midlands-based bank, alongside Bradford & Bingley (B&B), has the most to gain from Basle II: potential boosts to their valuations of 31 per cent each, according to estimates from HSBC. Next in line is Northern Rock, which could receive an uplift of some 15 per cent.

That benefit, together with their perceived status as takeover targets, partly explains why this trio’s shares trade at higher multiples than the rest of their sector: A&L sits at 12.1 times 2008 earnings forecasts, for example, against 8.1 times for Royal Bank of Scotland (RBS).

It is possible to discern different tactics between these three as to how they intend to use their freed-up capital. A&L recently has put an increased emphasis on share buybacks, while Northern Rock has signalled a desire to raise its payout ratio. And in last month’s deal with GMAC, under which it will take on up to £4 billion a year of the American lender’s mortgage portfolio, B&B appears keen to write more new business.

Significant uncertainties remain, however. Under the new regime, domestic regulators have the power to make additional capital requirements of their local banks over and above the Basle II minimum. Our own Financial Services Authority (FSA) has yet to clarify its position, but the scope for variation within Europe clearly raises the possibility of “capital arbitrage”: that is, a bank with a parent of different domicile could opt for the jurisdiction that suited it best. While regulated by the FSA, for example, the balance sheet of Abbey is consolidated within the accounts of Santander, its owner, which answers to the Bank of Spain.

There is also a view that the potential benefit to the shareholders of mortgage banks, and penalty to those of wholesale banks, have been vastly overplayed, if not transposed altogether.

JPMorgan takes the contrarian stance that investors in the likes of A&L could actually be worse off. It believes that, instead of returning cash to shareholders, mortgage banks will use the financial headroom provided by Basle II to engage in a price war. Carla Antunes da Silva, an analyst, already detects signs of this in the heavily discounted mortgage deals offered over the last year by Sweden’s Swedbank, ING, of the Netherlands, and Barclays.

In this newly competitive environment, the margins of the mortgage banks suddenly become more vulnerable, meaning that Basle II is more likely to serve the interests of a bank’s customers than its shareholders. Conversely, the more diversified banks, such as RBS, are protected by their wholesale operations from falling returns from retail activities, and so emerge as the unlikely winners.

While Basle II may be the biggest regulatory change to affect the banking sector in two decades, it is hard to divine to what extent its impact has already been factored into valuations. As demonstrated by the rerating of life insurers after the FSA’s easing of its solvency requirements, share prices are undoubtedly sensitive to regulatory edicts, however dull they may initially seem.

So even though it is likely to be some time before the capital changes entailed in Basle II are reflected by the banks themselves, it is through the stock market that the impact will first be felt.

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