Basel Accords

Overview


The Basel Committee on Banking Supervision is a committee of banking supervisors who collectively agree on a set of international standards for for bank capital, liquidity and funding. These standards are non binding, however, they are generally followed by member countries. As part of the published standards, Basel produces a set of formulas for managing bank risk. The formulas for calculating bank capital from a set of default models is available in the davinci library.

Basel Accords


There are multiple Basel accords. Later do not necessarily replace earlier ones, but may build upon the earlier frameworks.

  • Basel I : focused primarily on credit risk and establising a simple framework for capital requirements given a banks credit risk. Created the risk weight asset calculation.
  • Basel II : is built on three pillars.
    • Minimum capital requirements
    • Supervisory Review
    • Market Discipline
  • Basel III : was designed to strengthen the capital adequacy requirements of BAsel 2, and in addition to address bank stress testing and liquidity.

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