Basel Accord

The Basel Committee

The Basel Committee on Banking Supervision is an institution created by the central bank Governors of the Group of Ten nations . It was created in 1974 and meets regularly four times a year.

Its membership is now composed of senior representatives of bank supervisory authorities and central banks from the G-10 countries (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States), and representatives from Luxembourg and Spain. It usually meets at the Bank for International Settlements in Basel, where its 12 member permanent Secretariat is located.

The Basel Committee formulates broad supervisory standards and guidelines and recommends statements of best practice in banking supervision (see bank regulation or Basel II, for example) in the expectation that member authorities and other nation's authorities will take steps to implement them through their own national systems, whether in statutory form or otherwise.

The purpose of the committee is to encourage convergence toward common approaches and standards. Dieter Kerwer reports that "the BCBS is not a classical multilateral organization. It has no founding treaty, and it does not issue binding regulation. Rather, its main function is to act as an informal forum to find policy solutions and to promulgate standards." (pp 619)

The present Chairman of the Committee is Nout Wellink, President of the Netherlands Bank, who succeeded Jaime Caruana of the Bank of Spain on 1 July 2006.

The Basel Accords

The key Accord to come from the Basel Committee refers to capital adequacy - ensuring that financial institutions retain enough capital (see Tier 1 capital and Tier 2 capital) to protect themselves against unexpected losses.

The first Basel Accord was issued in 1988 and sets out the basics - such as credit risk. This was updated in 1996 to cover market risk and to clarify and extend the first Accord.

The second Basel Accord was finalized in 2004 after an extensive consultation process. It is aimed at making the capital measures much more risk sensitive and itemizing and quantifying several more categories of risk.

Work has commenced on preliminary aspects of the third Basel Accord, but, not much is currently known about what this will entail.

Spelling

The Basel Committee is named for the Swiss town of Basel. In early publications, the committee sometimes used the English spelling "Basle" or the French spelling "Bâle," names that are sometimes still used in the press. More recently, the Committee has deferred to the predominantly German population of the region and used the spelling "Basel."

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