A brief history of Basel

Benton Gup, Journal of Banking and Financial Services, October/November 2003

This extract gives a basic overview of what the Basel Accord is and how it came about. It also summarises what Basel II is trying to achieve.

The failure in the 1970s of the Hirstadt Bank in Germany, and the resulting disruption in international funds, was the trigger for 10 major trading countries to form the Basel Committee on Banking Supervision.

The Committee's original focus was to agree on best practices and thereby to harmonise international banking relationships. The stated objectives at that time were:

• to ensure an adequate level of capital; and
  
  
• to strive for competitive neutrality.

The accord has subsequently been adopted in more than 100 countries, including New Zealand.

Basel II is an attempt by international bank regulators to deal with the increasing complexity and risk sensitivity of the largest, most complex, financial organisations. It has three pillars:

• capital requirements;
  
  
• supervisory review; and
  
  
• market discipline.

Click here to link to the Reserve Bank of New Zealand website for information on New Zealand's position with regard to the three pillars.

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