The Basel Capital Accord (Basel II) guidelines promulgated by the Bank for International Settlements (BIS) establish capital adequacy requirements and supervisory standards for banks to be implemented by 2007 and is structured in terms of three pillars. Basel II compliance is probably the single greatest challenge – and opportunity – for banks during the next few years.
The proposed new Basel II is designed to facilitate a more comprehensive, sophisticated and risk-sensitive approach for banks to calculate regulatory capital. The proposals will enable banks to align regulatory requirements more closely with their internal risk measurement and to improve operational processes.
The 1998 Basel Accord
The first Basel Accord was published in 1988 by the BIS. It introduced a conceptually simple risk based approach. It requires banks to hold minimum capital of 8% of risk-weighted assets as a cushion against credit risk and market risk. This first Basel Accord was then amended in 1996 to allow banks to use internal risk models for market risk.
The 1998 Basel Accord is recognized as an international standard and has been implemented in over 100 countries.
The new Basel 2 provides an opportunity for banks to reduce their economic and regulatory capital through efficient data management and reporting. Basel II also provides a unique opportunity for banks to modernize and upgrade their risk practices, policies and technology so that they can manage their credit, market and operational risk.
Risk Limited can assist you and your organization in complying with Basel II requirements and developing processes and systems that meet best practices standards for Basel II Capital Accord compliance. Contact Risk Limited if you need information or if we can be of assistance to you on Basel II issues.
Click to go directly to the Risk Limited glossary of terminology to see other terms and definitions related to Basel II, IAS 39, operational risk, FAS 133 and Sarbanes-Oxley:
Risk Limited Glossary
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