Basel Accord
 |
Definition of 'Basel Accord'A set of agreements set by the Basel Committee on Bank Supervision (BCBS), which provides recommendations on banking regulations in regards to capital risk, market risk and operational risk. The purpose of the accords is to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses. |
 |
Investopedia explains 'Basel Accord'The first Basel Accord, known as Basel I, was issued in 1988 and focuses on the capital adequacy of financial institutions. The capital adequacy risk, (the risk that a financial institution will be hurt by an unexpected loss), categorizes the assets of financial institution into five risk categories (0%, 10%, 20%, 50%, 100%). Banks that operate internationally are required to have a risk weight of 8% or less.The second Basel Accord, known as Basel II, is to be fully implemented by 2015. It focuses on three main areas, including minimum capital requirements, supervisory review and market discipline, which are known as the three pillars. The focus of this accord is to strengthen international banking requirements as well as to supervise and enforce these requirements. |
Related Definitions
Articles Of Interest
-
Analyzing A Bank's Financial Statements
A careful review of a bank's financial statements can help you identify key factors in a potential investment. -
Using Economic Capital To Determine Risk
Discover how banks and financial institutions use economic capital to enhance risk management. -
Understanding The Basel III International Regulations
The Basel III regulations mark a drastic reform in international banking. But how do they impact the future's investment landscape? -
Is Your Bank On Its Way Down?
Find out how the Tier 1 capital ratio can be used to tell if your bank is going under. -
How Basel 1 Affected Banks
This 1988 agreement sought to decrease the potential for bankruptcy among major international banks. -
Basel II Accord To Guard Against Financial Shocks
Problems with the original accord became evident during the subprime crisis in 2007. -
What is the difference between investment banks and merchant banks?
Merchant banks and investment banks, in their purest forms, are different kinds of financial institutions that perform different services. In practice, the fine lines that separate the functions ... -
How do central banks acquire currency reserves and how much are they required to hold?
A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign exchange reserves. Reserve currencies usually also become the international ... -
Behavioral Bias - Cognitive Vs. Emotional Bias In Investing
We all have biases. The key to better investing is to identify those biases and create rules to minimize their effect. -
Why Your Pension Plan Has Sovereign Debt In It
One type of security pensions tend to invest in is sovereign debt, or debt issued by a government.
Free Annual Reports
