- In 1988, the Basel Committee on Banking Supervision (BCBS) in Basel, Switzerland, published a set of minimum capital requirements for banks. This is also known as the 1988 Basel Accord, and was enforced by law in the Group of Ten (G-10) countries in 1992.
- Its objective is to enhance understanding of key supervisory issues and improve quality of banking supervision worldwide.
- It does so by exchanging information on national supervisory issues and techniques with a view to promoting common understanding.
BASEL I Norms
- Established in the year 1988.
- Attempts to introduce minimum standards of capital adequacy.
- According to BASEL I financial institutions are categorized based on capital adequacy(capital required to face an unexpected loss).
BASEL II Norms
- Established in the year 1999.
- Basel II has been introduced to overcome the drawbacks of Basel I.
- Capital Adequacy.
- Supervisory Review.
- Market Discipline.
- Capital Adequacy Ratio or Capital to Risk Weighted Asset Ratio of minimum 8% must be maintained.
SUPERVISORY REVIEW
- Banks should develop and use better risk management techniques in monitoring and managing their risks like Credit Risk, Operational Risk and Market Risk.
- Supervisors should review and evaluate banks internal capital adequacy and should have ability to monitor and ensure banks compliance with regulator capital ratio.
MARKET DISCIPLINE
- Imposes banks to conduct their banking business in a safe sound and effective manner.
- Banks should make mandatory disclosure on capital, risk exposures etc so that market participants can asses a banks capital adequacy.
BASEL III Norms
- Framed in response to the global economic slowdown of 2008.
- Capital Adequacy of minimum 9% must be maintained.
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