Browse Definitions :
Definition

Basel II

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

Continue Reading About Basel II

Start the conversation

Send me notifications when other members comment.

Please create a username to comment.

-ADS BY GOOGLE

File Extensions and File Formats

Powered by:

SearchCompliance

  • California Consumer Privacy Act (CCPA)

    The California Consumer Privacy Act (CCPA) is legislation in the state of California that supports an individual's right to ...

  • compliance audit

    A compliance audit is a comprehensive review of an organization's adherence to regulatory guidelines.

  • regulatory compliance

    Regulatory compliance is an organization's adherence to laws, regulations, guidelines and specifications relevant to its business...

SearchSecurity

  • endpoint detection and response (EDR)

    Endpoint detection and response (EDR) is a category of tools and technology used for protecting computer hardware devices–called ...

  • ransomware

    Ransomware is a subset of malware in which the data on a victim's computer is locked, typically by encryption, and payment is ...

  • single sign-on (SSO)

    Single sign-on (SSO) is a session and user authentication service that permits an end user to enter one set of login credentials ...

SearchHealthIT

SearchDisasterRecovery

  • disaster recovery team

    A disaster recovery team is a group of individuals focused on planning, implementing, maintaining, auditing and testing an ...

  • cloud insurance

    Cloud insurance is any type of financial or data protection obtained by a cloud service provider. 

  • business continuity software

    Business continuity software is an application or suite designed to make business continuity planning/business continuity ...

SearchStorage

  • blockchain storage

    Blockchain storage is a way of saving data in a decentralized network which utilizes the unused hard disk space of users across ...

  • disk mirroring (RAID 1)

    RAID 1 is one of the most common RAID levels and the most reliable. Data is written to two places simultaneously, so if one disk ...

  • RAID controller

    A RAID controller is a hardware device or software program used to manage hard disk drives (HDDs) or solid-state drives (SSDs) in...

Close