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.

By submitting you agree to receive email from TechTarget and its partners. If you reside outside of the United States, you consent to having your personal data transferred to and processed in the United States. Privacy

Please create a username to comment.

-ADS BY GOOGLE

File Extensions and File Formats

Powered by:

SearchCompliance

  • smart contract

    A smart contract, also known as a cryptocontract, is a computer program that directly controls the transfer of digital currencies...

  • risk map (risk heat map)

    A risk map, also known as a risk heat map, is a data visualization tool for communicating specific risks an organization faces. A...

  • internal audit (IA)

    An internal audit (IA) is an organizational initiative to monitor and analyze its own business operations in order to determine ...

SearchSecurity

  • evil maid attack

    An evil maid attack is a security exploit that targets a computing device that has been shut down and left unattended.  An evil ...

  • Common Body of Knowledge (CBK)

    In security, Common Body of Knowledge (CBK) is a comprehensive framework of all the relevant subjects a security professional ...

  • rootkit

    A rootkit is a program or, more often, a collection of software tools that gives a threat actor remote access to and control over...

SearchHealthIT

  • value-based healthcare

    Value-based healthcare, also known as value-based care, is a payment model that rewards healthcare providers for providing ...

  • health informatics

    Health informatics is the practice of acquiring, studying and managing health data and applying medical concepts in conjunction ...

  • clinical trial

    A clinical trial, also known as a clinical research study, is a protocol to evaluate the effects and efficacy of experimental ...

SearchDisasterRecovery

  • crisis communication

    Crisis communication is a method of corresponding with people and organizations during a disruptive event to provide them with ...

  • Zerto

    Zerto is a storage software vendor that specializes in enterprise-class business continuity and disaster recovery in virtual and ...

  • crisis management plan (CMP)

    A crisis management plan (CMP) is a document that outlines the processes an organization will use to respond to a critical ...

SearchStorage

  • SSD write cycle

    An SSD write cycle is the process of programming data to a NAND flash memory chip in a solid-state storage device.

  • data storage

    Data storage is the collective methods and technologies that capture and retain digital information on electromagnetic, optical ...

  • hard disk

    A hard disk is part of a unit -- often called a disk drive, hard drive or hard disk drive -- that stores and provides relatively ...

SearchSolidStateStorage

  • hybrid hard disk drive (HDD)

    A hybrid hard disk drive is an electromechanical spinning hard disk that contains some amount of NAND Flash memory.

Close