Basel II

Basel Committee on Banking Supervision – Revised international capital framework for monetary and financial stability

Published under Risk Management
Title: Basel Committee on Banking Supervision – Revised international capital framework for monetary and financial stability

Note: the most recent version is dated June 2006, following earlier versions of November 2005 and June 2004. The initial version (the so called Basel I) is largely considered superseded.
Source reference: http://www.bis.org/publ/bcbs128.htm
Topic: Financial risk and minimal capital requirements, as issued by the Basel Committee with regard to banking activities.
Direct / indirect relevance Indirect. A large part of the text focuses on financial RM/RA practices, which implies an obligation to implement appropriate RM/RA measures with regard to network/information security.
Scope: The document is a statement of requirements to be met for banking institutions in order to sufficiently ensure their financial stability from the Basel Committee, whose members hail from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom and the United States. While the Committee has no formal authority, Basel I was adopted through legislation in the G-10 countries (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, and the United States), and its principles were directly or indirectly subscribed to in a multitude of other countries’ legislations. Basel II is not yet as widely adopted; its legal binding force therefore varies from country to country.
Legal force: Not universally legally binding, but always considered highly authoritative
Affected sectors: Banking institutions.
Relevant provision(s): The document is relevant in its entirety to internationally active banking institutions, and prescribes a number of requirements for such institutions in three basic pillars: Minimum Capital Requirements (covering credit risk, operational risk and market risk), Supervisory Review Processes (covering reputation risk, liquidity risk and legal risk, under the joint title ‘residual risk’), and Market Discipline (including disclosure of risk position).

(See also http://www.bis.org/publ/bcbs107.htm)
Relevance to RM/RA: Assessing the relevance of Basel II is complicated, since it is partially dependant on whether or not local governments have adopted it into their local regulations (or if Basel I has), and how this adoption has occurred.

At any rate, Basel II is considered to be highly authoritative as a yardstick for measuring the RM/RA practices of banking institutions in ensuring their financial stability, even without considering legal imperatives to adhere to its provisions. Specifically, Basel II is considered by the Basel Committee to be instrumental in assessments of risk provided by banks’ internal systems as inputs to capital calculations.

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