The Basel Accords

Paper Summary:

The paper explains that as advancements and changes in banking and financial markets increase, so do the risks involved. To protect these risks, the Bank for International Settlements created the Basel Committee, which established the Basel accords, which set forth the framework to minimize credit risk by introducing capital adequacy standards for large active banks. The paper presents a historical overview of the Basel accords and committee and then critically analyzes the current issues facing the accords. The paper discusses how the proposed BaselII framework provides a major advancement in protecting financial systems. The paper contends that although the implementation of the new accord is a complex process, our country's financial and economic stability is well worth the extra effort.

From the Paper:

"Throughout the world, the business of banking involves taking and managing risks. Lending money, for example, involves the risk that the borrower might not repay the loan as promised or depositing money with the bank paying out interest at a fixed rate, only to be faced with the risk of interest rates dropping and the bank earning less on its investments than its paying out on interest towards the deposited amount. As advancements and changes in banking and financial markets increase, so does risk. The position of the banking business in the financials services industry has become such a large entity, that the management of banking risks has become ever more important to the financial stability and growth of the world economy."

Sample of Sources Used:

• Bank for International Settlements website, About the Basel Committee,accessed April 25th, 2007, available from http://www.bis.org/bcbs/
• Bank for International Settlements website, History of the Basel Committee and its Membership, accessed April 25th, 2007, available from http://www.bis.org/bcbs/history.htm
• Council of Mortgage Lenders website, Basel II: questions and answers, accessed on April 17th, 2007, available from http//:www.cml.org.uk/cml/policy/issues/721
• Deloitte website, From framework to execution: Effective planning and implementation of the Basel IIAccord in Asia Pacific, accessed on April 20th, 2007, available from http//:www.deloitte.com/dtt/research/0,1015,sid=1013&cid=88619,00.html
• Erisk Holdings website, The Ripple Effect: How Basel II will impact institutions of all sizes, accessed on April 21st, 2007, available from http://www.erisk.com/ResourceCenter/Regulation/ERisk_Basel_II_Whitepaper.pdf

More papers on The Basel Accords:

• Descriptive Essay # 105746 : "Banking Regulation Basel II"
• Research Paper # 106554 : "Basel II Banking Supervision"
• Research Paper # 47424 : "Basel Capital Accord II"

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