Basel II and Basel III Framework

    - Advertisement -
    Also read Basel Committee (before reading this)

    Basel II

    The Basel II Framework describes a more comprehensive measure and minimum standard for capital adequacy for national supervisory authorities are now working to implement through domestic rule-making and adoption procedures. It seeks to improve on the existing rules by aligning regulatory capital requirements more closely to the underlined risks the banks face. In addition, the Basel II Framework intended to promote a more forward-looking approach to capital supervision, one that encourage banks to identify the risks they may face, today and in the future and to develop or improve their ability to manage those risks. As a result, it is intended to be more flexible and better able to evolve with advances in markets and risk management practices.
    The efforts of the Basel Committee on banking supervision to revise the standard governing the capital adequacy of internationally active banks achieved a critical milestone in the publication of an agreed text in June 2004.
    In Nov 2005, the committee issued an updated version of the revised framework incorporating the additional guidance set forth in the committee’s paper. The application of Basel II trading activities and the treatment of double default effects (July 2005).
    On 4th July 2006, the committee issued a comprehensive version of the Basel II Framework. Solely as a matter convenience to readers, this 2004 Basel II Framework, the elements of the 1988 accord that were not revised during the Basel II process, the 1996 Amendment to the capital accord incorporate market risks, and the 2005 paper on the application of Basel II to trading activities and the treatment if double default effects. No new elements have been introduced in this compilation.

    Basel III

    Basel III is a comprehensive set of reform measures, developed by the Basel Committee on banking supervision, to strengthen the regulation, supervision and risk management of the banking sector. These measures aim to :
    • improve the banking sector’s ability to absorb shocks arising from financial and economic stress, whatever the source
    • improve risk management and governance
    • strengthen banks’ transparency and disclosures.
    The reforms target:
    • bank level, or micro-prudential, regulation, which will help raise the resilience of individual banking institutions, to periods of stress.
    • macro-prudential, the system-wide risk that can build across the banking sector as well as the procyclical amplification of these risks over time.
    The two approaches to supervision are complementary as greater resilience at the individual bank level reduces the risk of system wide shocks.
    Don’t Miss:
    - Advertisement -

    Recent Articles

    Koya Sree Harsha IAS Rank 6 – A Must Read Strategy

    Koya Sree Harsha secured 6th rank in IAS Exam in his first attempt. He completed his Production and Industrial Engineering from NIT...

    Water Pollution

    Water, the basic necessity of life, has its use in agriculture, household and industry; however due to disposal of domestic wastes and industrial effluents ...

    Events and Festivals in Puri

    Puri is mostly described and defined as a holy place of India. People often come here to experience the holy and divine spirits of...

    Indian Nuclear Tech Research and Development

    The importance of nuclear energy, as a sustainable energy resource for our country, was recognized at the very inception of our atomic energy program...

    How to Read The Hindu Newspaper for IAS Preparation?

    Reading The Hindu or Indian Express is the preferred newspaper as it is crucial and indispensable part of IAS preparation. The importance of reading...

    Related Stories

    Stay on op - Ge the daily news in your inbox