The new Basel Capital Accord

The new Basel framework known as Basel II replaced the original Basel framework in 2007. The new framework is a non-binding agreement which has been in development since 1999 and which sets the standard for prudential regulation among the G-10 countries, although many other countries also seeks to implement the framework. Its provisions are given legal force by the national legislatures and regulatory bodies which commit to change any necessary banking laws and regulatory practices in order to abide by the standards and guidelines and statements of best practice.

Basel II comprises three mutually re-enforcing pillars:

• Pillar 1 capital adequacy
• Pillar 2 supervisory disclosure
• Pillar 3 market discipline

The objective of the IBfed's Basel II working party is to ensure equivalence in interpretation and to ensure the continuance of mutual recognition between the major jurisdictions. The basic objective is to ensure that no institution will be subject to more than one interpretation of the new Accord in any in jurisdiction because of home/host differences. To this end the industry strongly supports the development of a lead supervisory model. The lead (home state) supervisor would lead on the global supervision of a group and the approval process for the more advanced approaches. The host supervisor would lead on local implementation. The efforts of all would be coordinated in a college of supervisors.

The industry strongly supports the efforts of the Accord Implementation Group, a sub-group of the Basel Committee, to ensure convergence in practice which it will achieve by monitoring the implementation timetables and methodologies of regulators around the world and by meeting, where appropriate, with international groupings of regulators such as the AIG.