Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Tutoring
  • Home
  • Economics, Finance, & Analytics
  • Banking, Lending, and Credit Industry

Basel Accord - Explained

What is the Basel Accord?

Written by Jason Gordon

Updated at April 18th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is the Basel Accord?How Does the Basel Accord Work?Basel IBasel IIBasel III

What is the Basel Accord?

The Basel Accords refer to a set of banking regulations that gives recommendations with respect to market risk, capital risk, and operational risk. The Basel Accords are set by the Basel Committee on Bank Supervision (BCBS) to guide financial institutions on capital risk, market risk, and operational risk. BCBS acts as a supervisory authority for banks, this authority ensures that banks have enough liquidity to meet their financial obligations and liabilities.

Back to:BANKING, LENDING, & CREDIT INDUSTRY

How Does the Basel Accord Work?

The Basel Accords comprises a series of banking regulations names Basel I, Basel II and Basel III. These sets of regulations are internationally agreed upon as a response to the Financial Crisis in the banking industry. These banking regulations were created by the ten largest economies. The Basel Committee on Bank Supervision (BCBS) was established in 1974 to act as the supervisory authority over banking matters. When it was established, the objective of BCBS was to enhance the financial stability of banks and improve the quality of banks through adequate banking supervision. BCBS also ensures that banks have enough capital to absorb risks and perform their obligations.

Basel I

Basel I is the first Basel Accord, which was issued in 1988 to ensure the capital adequacy of banks and financial institutions. This Basel Accord was a response to the capital risk that financial institutions were exposed to. Given that banks are expected to face unexpected losses, they must possess enough capital to withstand the risk. The Basel I accord stipulates that banks have a capital adequacy risk weight of 8% or less before they operate. Assets owned by financial institutions are grouped into five risk categories which are; 0%, 10%, 20%, 50%, and 100%.

Basel II

Basel II is otherwise known as the Revised Capital Framework given that it is an updated version of the original Basel Accord. This second Base Accord has three key focus areas which are capital requirements, capital adequacy and the use of disclosure. Basel II sets the minimum capital requirements for banks and financial institutions, it also oversees the assessment process of capital adequacy and ensures that sound market practices exist in the banking sector.

Basel III

Basel III was third the Basel Accord that was created as a response to the 2008 financial crisis. After the 2008 crisis. The supervisory authority, BCBS set up Basel II as a way of strengthening the existing accords. This accord proffers solution to inadequate management, bad governance, and poor structures that wretched the financial industry. The three focus areas of Basel II were maintained and continued by Basel III, this accord also introduced additional regulations and requirements for financial institutions. The implementation of Basel III commenced in January 2013 and this implementation is expected to be fully achieved in January 2019.

basel accord

Was this article helpful?

Yes
No

Related Articles

  • Alienation Clause (Contract) - Explained
  • Emergency Banking Act of 1933 - Explained
  • Set Off Clause - Explained
  • Banker's Blanket Bond - Explained



©2011-2021. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand