Basel II

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Basel II

An agreement on international banking regulations dealing with how banks handle risk. Basel II establishes risk management and risk capital requirements in an attempt to ensure banks remain solvent. Basel II consists of three pillars. The first deals with capital requirements and mandates that banks exposed to more risk (which is itself categorized and quantified) must maintain sufficient capital. The second pillar provides an outline that regulators can use to deal with non-quantifiable forms of risk. The third attempts to promote market discipline.
References in periodicals archive ?
The new rules, known as Basel 2, require banks operating internationally to have capital equal to 8 percent of outstanding loans and other risk-weighted assets, the same level as under the exiting regulations, but Basel 2 calls for, among other things, stiffening assessment of risks involved in lending to borrowers.
In computing the size of a bank's denominator, Basel 2 also takes into accounts the risks associated with possible computer-system paralysis or illicit activities by a bank's employees.
If a bank can be deemed to have high levels of methods for controlling a range of risks including loan-loss risks, Basel 2 would allow the bank to use its in-house credit ratings, rather than outside ratings, in assessing degrees of default risks posed by its borrowers.
But under Basel 2, which will be phased in from December 2006, risk weight will be assessed based on credit ratings assigned by private rating agencies to corporate borrowers.
Also under Basel 2, the greater loan-loss provisions a bank sets aside for a loan to a troubled company, the smaller risk weight will be assigned to such a loan, which in turn will help push up capital adequacy.
In Japan, the Financial Services Agency is expected to revise relevant domestic regulations in tandem with Basel 2 with an eye to applying the new norms to banks' book-closings for the year to March 31, 2007, Japanese officials said.
02 FC Basel 2 Celtic 0 (Champions League 3rd qualifying, 2nd leg) Celtic crash out on away goals after Giminez and Murat Yakin struck.
banks have not yet moved to comply with tougher Basel 2.