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.

BREAKING DOWN '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.

  1. Federal Reserve Bank

    The central bank of the United States and the most powerful financial ...
  2. Basel III

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  3. Bank For International Settlements ...

    An international organization fostering the cooperation of central ...
  4. Tier 1 Capital

    A term used to describe the capital adequacy of a bank. Tier ...
  5. Capital Adequacy Ratio - CAR

    A measure of a bank's capital. It is expressed as a percentage ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European ...
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