Mastering Your Data by Andy Graham

Author:Andy Graham [Graham, Andy]
Language: eng
Format: azw3
Publisher: Koios Associates Ltd
Published: 2015-08-21T16:00:00+00:00

Basel Accord

In 1988, the Basel Committee on Banking Supervision in Basel, Switzerland, published a set of minimum capital requirements for banks. Later in 1992 the G-10 (Group of Ten) countries enshrined this into law.

Basel I is primarily focused on credit risk and appropriate risk-weighting of assets. It stipulated that banks must have enough funds to cover potential losses. This meant that the total capital should always be more than about 8% of its risk-weighted assets.

Basel 2 replaces the existing standard with a framework that seeks to providing a more risk-sensitive, flexible, but more heavily regulated, approach. The three essential requirements of Basel II are:

•Mandating that capital allocations are risk sensitive.

•Separating credit risks from operational risks and quantifying both.

•Reducing the scope or possibility of regulatory arbitrage, by attempting to align the real or economic risk precisely with regulatory assessment.

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