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, 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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