What is the Basel Committee on Banking Supervision
The Basel Committee on Banking Supervision is an international committee formed to develop standards for banking regulation; it is made up of central bankers from 27 countries and the European Union.
BREAKING DOWN Basel Committee on Banking Supervision
The Basel Committee on Banking Supervision (BCBS) was formed in 1974 by central bankers from the G10 countries, who were at that time working towards building new international financial structures to replace the recently collapsed Bretton Woods system. The committee is headquartered in the offices of the Bank for International Settlements (BIS) in Basel, Switzerland.
The BCBS has developed a series of highly influential policy recommendations known as the Basel Accords. These are not binding, and must be adopted by national policymakers in order to be enforced, but they have generally formed the basis of banks' capital requirements in countries represented by the committee and beyond.
The first Basel Accords, or Basel I, was finalized in 1988 and implemented in the G10 countries, at least to some degree, by 1992. It developed methodologies for assessing banks' credit risk based on risk-weighted assets and published suggested minimum capital requirements to keep banks solvent during times of financial stress.
Basel I was followed by Basel II in 2004, which was in the process of being implemented when the 2008 financial crisis occurred.
Basel III attempted to correct the miscalculations of risk that were believed to have contributed to the crisis by requiring banks to hold higher percentages of their assets in more liquid forms and to fund themselves using more equity, rather than debt. It was initially agreed upon in 2011 and scheduled to be implemented by 2015, but as of December 2017 negotiations continue over a few contentious issues. One of these is the extent to which banks' own assessments of their asset risk can differ from regulators'; France and Germany would prefer a lower "output floor," which would tolerate greater discrepancies between banks' and regulators' assessment of risk. The U.S. wants the floor to be higher.