Resources for Basel II Capital Accord (Basel II)

Banks fighting new regulation developed to help them lower capital reserves

news.medill.northwestern.edu

As banks across the country continue to deal with the credit crisis, the Federal Reserve Board is hoping to prevent future debacles with the implementation of Basel II. But banks are not so ready for the help.

Named after the Swiss city where it was developed, Basel II lays out three pillars of risk management and capital allocation for financial institutions that have $200 billion in assets of that have international exposure. The three pillars cover minimum capital requirements, supervisory oversight and heightened market discipline.

Basel II follows the Basel Accords, developed in 1998. That first framework mandated how banks capitalized themselves and made sure they had adequate reserves to withstand market turmoil and shock, explained Michael Schuchardt, managing director of Protiviti Inc.'s financial risk practice. Under the original regulation, different assets had different risk ratings and therefore different amounts of capital requirements.

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