Basel II

In order to stabilise the banking system and to prevent unfair competition, the amount and the quality of equity capital required in banks have been harmonised at international level. This harmonisation took place for the first time in 1988 through the standards of the Basle Committee on Banking Supervision („Basle I“) and the Directives of the European Union based on Basle I.

Since the implementation of the EU Directives based on Basle I, banking business but also the banking landscape have changed in such a way that the existing capital requirements of banks no longer appropriately reflect the risk. In consequence to this development, the Basle Committee decided in 1998 to establish new standards, in which the risks and the capital requirement in relation to these risks are more accurately depicted. This means that minimum capital requirements for banks and investment firms have to be calculated in a more risk-sensitive way. So, the creditworthiness of the borrower will be used as a measure for the assessment of the banks' own funds to increase the security and soundness of the financial system.

Building on the results of the 3^rd consultation, in June 2004 the Basle Comittee agreed on the new capital adequacy framework which is generally referred to as "Basle II". A proposal for the amendment of the Consolidated Banking Directive (2000/12/EC) and the Capital Adequacy Directive (93/6/EEC) has been adopted by the European Commission in July 2004. Due to the co-decision procedure, this proposal has to be approved by Council and European Parliament. The new provisions on capital requirement for banks will enter into force in the beginning of 2007.

 

 

• Basel Committee on Banking Supervision
• European Commission – DG Domestic Market

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