What is Basel II? - Definition from WhatIs.com
Part of the IT standards and organizations glossary:

Basel II is an international business standard that requires financial institutions to maintain enough cash reserves to cover risks incurred by operations. The Basel accords are a series of recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision (BSBS). The name for the accords is derived from Basel, Switzerland, where the committee that maintains the accords meets.

Basel II improved on Basel I, first enacted in the 1980s, by offering more complex models for calculating regulatory capital. Essentially, the accord mandates that banks holding riskier assets should be required to have more capital on hand than those maintaining safer portfolios. Basel II also requires companies to publish both the details of risky investments and risk management practices. The full title of the accord is Basel II: The International Convergence of Capital Measurement and Capital Standards - A Revised Framework.

The three essential requirements of Basel II are:

  1. Mandating that capital allocations by institutional managers are more risk sensitive.
  2. Separating credit risks from operational risks and quantifying both.
  3. Reducing the scope or possibility of regulatory arbitrage by attempting to align the real or economic risk precisely with regulatory assessment.

Basel II has resulted in the evolution of a number of strategies to allow banks to make risky investments, such as the subprime mortgage market. Higher risks assets are moved to unregulated parts of holding companies. Alternatively, the risk can be transferred directly to investors by securitization, the process of taking a non-liquid asset or groups of assets and transforming them into a security that can be traded on open markets.

This was last updated in January 2008
Posted by: Margaret Rouse

Related Terms

Definitions

Glossaries

  • IT standards and organizations

    - Terms related to information technology (IT) standards, including definitions about IT organizations and words and phrases about policies and compliance.

  • Internet applications

    - This WhatIs.com glossary contains terms related to Internet applications, including definitions about Software as a Service (SaaS) delivery models and words and phrases about web sites, e-commerce ...

Ask a Question. Find an Answer.Powered by ITKnowledgeExchange.com

Ask An IT Question

Get answers from your peers on your most technical challenges

Ask Question
  • Is it possible to take CISSP and Basel ii exams at the same time?

    I have taken the CISSP training courses from Net Security training company. This company offers a number of training sessions, including CISSP and Basel ii. Here's the link for Basel ii. 

  • Looking for Basel ii training

    Hello, I know one company very good and offers free exam, if you take the training, good value for money, the instructor is excellent, has a very good experience for over than 15 years as far as I ...

Tech TalkComment

Share
Comments

    Results

    Contribute to the conversation

    All fields are required. Comments will appear at the bottom of the article.