The Basel Committee On Banking Supervision

The Committee is a forum for regular cooperation on banking supervisory matters.  It is heavily involved in standard setting and is best known for international standards on capital adequacy (the Basel Accord), the Core Principles for Effective Banking Supervision and the Principles for the supervision of banks' foreign establishments (Concordat).  The first Basel Accord was introduced in 1988 to strengthen the capital position of internationally active banks following the Herstatt Bank collapse, which revealed “that banks were woefully under-capitalized … in America, Europe and Japan”. As a result, the US regulators in particular wanted to ensure their banks substantially improved their capital position, but in a way that did not unduly disadvantage them vis-à-vis their major competitors. The Accord required banks in member countries to hold adequate capital (based on fairly simplistic formulae).  The Accord has been recently revised and is now a more comprehensive minimum standard for capital adequacy. Basel II aligns regulatory capital requirements more closely to the broad range of risks that banks face.  It also pays greater attention to market transparency and cooperation between national regulators. Even thought the Committee has only 12 member countries, the Accord has been adopted by over 100 countries, including many emerging markets. It has been described as one of the most successful regulatory harmonization projects ever, at least in the commercial field. There is also talk of “an insurance Basel before long”, in recognition of the success of the Basel Accord. The Committee has also focused on “broad supervisory standards and guidelines”. It developed best practice supervisory rules that national regulators could implement in a locally appropriate way. The Concordat established the widely accepted home-host model, providing that "[h]ost authorities are responsible for the operation of foreign banking establishments within their territories as individual institutions, while parent authorities are responsible for them as part of larger banking groups".