ERM Glossary: Basel II

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Basel II is the second of the Basel Capital Accords (for banks). These are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. The purpose of Basel II, which was initially published in June 2004 (but is more commonly dated as corresponding to the capital adequacy framework issued by the Basel Committee on Banking Supervision in June 2006 in the form of the ‘International Convergence of Capital Measurement and Capital Standards’), was to create an international standard that banking regulators could use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face.

Basel II superseded earlier rules referred to as Basel I. In contrast to Basel I, Basel II aimed to be ‘risk sensitive’ in the sense that the capital requirements for internationally active banks that it proposed depended on the riskiness of their exposures.

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