The Basel Accords refer to the banking supervision Accords (recommendations on banking laws and regulations)—Basel I and Basel II and Basel III—by the Basel Committee on Banking Supervision (BCBS). They are called the Basel Accords as the BCBS maintains its secretariat at the Bank for International Settlements in Basel, Switzerland.
The Committee's members come from Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The present Chairman of the Committee is Stefan Ingves, Governor of the central bank of Sweden.
Basel I is the round of deliberations by central bankers from around the world, and in 1988, the Basel Committee (BCBS)published a set of minimal capital requirements for banks. This is also known as the 1988 Basel Accord, and was enforced by law in the Group of Ten (G-10) countries in 1992 . Basel I, primarily focused on credit risk. Assets of banks were classified and grouped in five categories according to credit risk,carrying risk weights of zero (for example home country sovereign debt), ten,twenty, fifty, and up to one hundred percent (this category has, as an example,most corporate debt). Banks with international presence are required to hold capital equal to 8 % of the risk-weighted assets.
Basel II is the second of the Basel Accords. The purpose of Basel II, which was initially published in June 2004, is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face while maintaining sufficient consistency so that this does not become a source of competitive inequality amongst internationally active banks.It aims at:
1. Ensuring that capital allocation is more risk sensitive;
2. Enhance disclosure requirements which will allow market participants to assess the capital adequacy of an institution;
3. Ensuring that credit risk, operational risk and market risk are quantified based on data and formal techniques;
4. Attempting to align economic and regulatory capital more closely to reduce the scope for regulatory arbitrage.
Basel II uses a "three pillars" concept – (1) minimum capital requirements (addressing risk), (2) supervisory review and (3) market discipline.
The Basel I accord dealt with only parts of each of these pillars.
BASEL III is a new global regulatory standard on bank capital adequacy and liquidity agreed upon by the members of the BCBS. The third of the Basel Accords was developed in a response to the deficiencies in financial regulation revealed by the global financial crisis. Basel III strengthens bank capital requirements and introduces new regulatory requirements on bank liquidity and bank leverage. The Organisation for Economic Co-operation and Development (OECD) estimates that the implementation of Basel III will decrease annual GDP growth by 0.05 to 0.15 percentage point.Proposed changes are :- First, the quality, consistency, and transparency of the capital base will be raised.Second, the risk coverage of the capital framework will be strengthened. Third, the Committee will introduce a leverage ratio as a supplementary measure to the Basel II risk-based framework.Fourth, the Committee is introducing a series of measures to promote the build up of capital buffers in good times that can be drawn upon in periods of stress.Fifth, the Committee is introducing a global minimum liquidity standard for internationally active banks.
The Committee's members come from Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The present Chairman of the Committee is Stefan Ingves, Governor of the central bank of Sweden.
Basel I is the round of deliberations by central bankers from around the world, and in 1988, the Basel Committee (BCBS)published a set of minimal capital requirements for banks. This is also known as the 1988 Basel Accord, and was enforced by law in the Group of Ten (G-10) countries in 1992 . Basel I, primarily focused on credit risk. Assets of banks were classified and grouped in five categories according to credit risk,carrying risk weights of zero (for example home country sovereign debt), ten,twenty, fifty, and up to one hundred percent (this category has, as an example,most corporate debt). Banks with international presence are required to hold capital equal to 8 % of the risk-weighted assets.
Basel II is the second of the Basel Accords. The purpose of Basel II, which was initially published in June 2004, is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face while maintaining sufficient consistency so that this does not become a source of competitive inequality amongst internationally active banks.It aims at:
1. Ensuring that capital allocation is more risk sensitive;
2. Enhance disclosure requirements which will allow market participants to assess the capital adequacy of an institution;
3. Ensuring that credit risk, operational risk and market risk are quantified based on data and formal techniques;
4. Attempting to align economic and regulatory capital more closely to reduce the scope for regulatory arbitrage.
Basel II uses a "three pillars" concept – (1) minimum capital requirements (addressing risk), (2) supervisory review and (3) market discipline.
The Basel I accord dealt with only parts of each of these pillars.
BASEL III is a new global regulatory standard on bank capital adequacy and liquidity agreed upon by the members of the BCBS. The third of the Basel Accords was developed in a response to the deficiencies in financial regulation revealed by the global financial crisis. Basel III strengthens bank capital requirements and introduces new regulatory requirements on bank liquidity and bank leverage. The Organisation for Economic Co-operation and Development (OECD) estimates that the implementation of Basel III will decrease annual GDP growth by 0.05 to 0.15 percentage point.Proposed changes are :- First, the quality, consistency, and transparency of the capital base will be raised.Second, the risk coverage of the capital framework will be strengthened. Third, the Committee will introduce a leverage ratio as a supplementary measure to the Basel II risk-based framework.Fourth, the Committee is introducing a series of measures to promote the build up of capital buffers in good times that can be drawn upon in periods of stress.Fifth, the Committee is introducing a global minimum liquidity standard for internationally active banks.
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