Basel Accords

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Definition: Basel Accords

Basel Accords is a set of recommendations on banking regulations issued by the Basel Committee on Bank Supervision (BCBS), an international committee established by the Bank for International Settlements to formulate policy on standards and best practices among financial regulators.

The recommendations primarily pertain to capital risk, market risk and operational risk and aim to ensure availability of adequate capital in financial institutions in order to meet obligations and tackle losses. Three sets of accords named Basel I, II and III have been issued till now in the years 1988, 2004 and 2010 respectively. While Basel I focused on capital adequacy of financial institutions, Basel II has three pillars viz. minimum capital requirements, supervisory review and market discipline. The latest recommendations in the form of Basel III aim at strengthening bank capital requirements by increasing bank liquidity and bank leverage.

The Basel Committee does not have the authority to enforce recommendations, although most member countries (consisting of G-20 major economies) usually implement the Committee's policies through national laws and regulations. The Basel II norms are currently under implementation which is expected to be completed by 2015.

Hence, this concludes the definition of Basel Accords along with its overview.


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