Basel II

An Introduction to Basel II

Basel II, is the 'International Convergence of Capital Measurement and Capital Standards'. In a nutshell, this is a set of recommendations by bankers from the 13 countries to revise the standards for measuring the adequacy of a bank's capital.

The objective of Basel II is basically to ensure that banks and their regulators approach risk management across national borders in a consistant way.

The first such 'accord' was created in 1998. Basel II was published in 2006 to replace it, although full impelmentation may take quite some time.

It uses a three pillars" concept: minimum capital requirements (for credit risk, operational risk and market risk); supervisory review (regulatory response to the former); market discipline (an increase in bank disclosure).

The situation though does continue to evolve, with early steps unerway with respect to the development of a Basel III accord at some point in the future.



THE BASEL COMMITTEE
The Basel Committee, known as the BCBS, comprises representatives from central banks and regulatory authorities of the G10 countries, plus a number of others. The BCBS was created in 1974 and meets four times a year.



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