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About Basel II

Basel II is a type of recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision that was initially published in June 2004. The objective
of Basel II 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.

History of Basel

The Basel Committee was constituted by the Central Bank Governors of the G-10 countries in 1974. The G-10 Committee consists of members from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, The Netherlands, Spain, Sweden, Switzerland, The UK and The US. These countries are represented by their Central Bank and also by the authority with onus for the prudent supervision of banking business where this is not the central bank.

The Committee's Secretariat is located at the Bank for International Settlements in Basel, Switzerland. This committee meets four times in a year. The present Chairman of this committee is Mr. Nout Wellink (President of The Netherlands Bank). The Secretary General of the Basel Committee is Mr. Stefan Walter.

This committee on banking supervision provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and quality improvement of banking supervision worldwide. This committee is best known for its international standards on capital adequacy; the core principles of banking supervision and the concordat on cross-border banking supervision.

Basel Capital Accord

The Basel Capital Accord (Basel II) guidelines promulgated by the BIS to establish capital adequacy requirements and supervisory standards for banks to be implemented by 2007 and are structured by three pillars.

The 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 process.

The Committee today consists of central bankers and supervisory regulators from 13 countries.

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* Contributed by: -
Jagannath Mishra & Pankaj Kumar Kalawatia,
Students of PGDBM Program, Class of 2008-10,
Institute of Public Enterprises, Hyderabad.
Article posted on September 27, 2008.