Bassel II

Basel Committee on Banking Supervision - Basel II Accord

Basel II, or the International Convergence of Capital Measurements and Capital Standards, also known as "The New Accord" is a Revised Framework. It is the second Basel Accord and represents recommendations from the Basel Committee on Banking Supervision (BCBS). It was created to promote greater consistency in the ways banks and banking regulators approach risk management across national borders.

BCBS provides a forum for regular cooperation on banking supervisory matters, and in recent years, it has developed increasingly into a standard-setting body on all aspects of banking supervision, including the Basel II Accord.

BCBS's members come from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, United Kingdom, and United States. Countries are represented by their central bank and also by the authority with formal responsibility for the prudential supervision of banking business where this is not the central bank.

Basel II addresses several key security requirements within its three "pillars" of thought-(1) Minimum Capital Requirements; (2) Supervisory Review; and (3) Market Discipline.

Internal data: According to Basel II, the tracking of internal loss event data is an essential prerequisite to the development and functioning of a credible operational risk measurement system. Internal loss data is most relevant when it is clearly linked to a bank's current business activities, technological processes, and risk management procedures. Therefore, a bank must have documented procedures for assessing the ongoing relevance of historical loss data, including those situations in which judgment overrides, scaling, or other adjustments may be used, to what extent they may be used and who is authorized to make such decisions. A bank must develop specific criteria for assigning loss data arising from an event in a centralized function (e.g., an information technology department) or an activity that spans more than one business line, as well as from related events over time.

Disclosure: The Committee (BCBC) believes that providing disclosures that are based on this common framework is an effective means of informing the market about a bank's exposure to those risks and provides a consistent and understandable disclosure framework that enhances comparability.

Proprietary and confidential information: Proprietary information encompasses information, that if shared with competitors would render a bank's investment in these products/systems less valuable, and hence would undermine its competitive position. Information about customers is often confidential, in that it is provided under the terms of a legal agreement or counterparty relationship. This has an impact on what banks should reveal in terms of information about their customer base, as well as details on their internal arrangements, such as methodologies used, parameter estimates, data, etc. Banks should have a formal disclosure policy approved by the board of directors that addresses the bank's approach for determining what disclosures it will make and the internal controls over the disclosure process. In addition, banks should implement a process for assessing the appropriateness of their disclosures, including validation and frequency of them.


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