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

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

SearchHealthIT

  • Health IT (health information technology)

    Health IT (health information technology) is the area of IT involving the design, development, creation, use and maintenance of ...

  • fee-for-service (FFS)

    Fee-for-service (FFS) is a payment model in which doctors, hospitals, and medical practices charge separately for each service ...

  • biomedical informatics

    Biomedical informatics is the branch of health informatics that uses data to help clinicians, researchers and scientists improve ...

SearchDisasterRecovery

  • risk mitigation

    Risk mitigation is a strategy to prepare for and lessen the effects of threats faced by a data center.

  • ransomware recovery

    Ransomware recovery is the process of resuming options following a cyberattack that demands payment in exchange for unlocking ...

  • natural disaster recovery

    Natural disaster recovery is the process of recovering data and resuming business operations following a natural disaster.

SearchStorage

  • non-volatile storage (NVS)

    Non-volatile storage (NVS) is a broad collection of technologies and devices that do not require a continuous power supply to ...

  • petabyte

    A petabyte is a measure of memory or data storage capacity that is equal to 2 to the 50th power of bytes.

  • Terabyte (TB)

    A Terabyte (TB) is a measure of computer storage capacity that is approximately 2 to the 40th power, or 10 to the 12th power, ...

Close