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What is Basel II?
The Basel II Capital Accord is designed to ensure the adequacy of a bank's capital and is based on recommendations of regulatory authorities and central banks in the thirteen countries making up the Basel Committee on Banking Supervision.
Basel II replaces the 1988 Capital Accord (Basel I) and is designed to remove the arbitrage between economic and regulatory capital by:-
 Separating Operational Risk from Credit Risk |
| Quantifying Operational and Credit Risk |
| Ensuring capital allocation is more sensitive to risk |
Basel II is normally described in terms of three 'pillars'
| Pillar |
Description |
| I |
Minimum Capital Requirement
Capital held against market, credit and operational risk.
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| II |
Supervisory Review
Regulator may hold additional capital against other risks
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| III |
Market Discipline
Explicit framework for market disclosures
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Relevance of Spreadsheet Risk
Basel II makes spreadsheet risk extremely concrete in that operational risk must be quantified.
Results from the JAMES GILL surveys on spreadsheet risk indicate that is likely to be difficult. We asked senior compliance and risk management executives from the financial services industry the question below.
Can You Quantify your Organisation's Spreadsheet Risk?
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More About Basel II
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Information from the BIS
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Across the EU, Basel II will be implemented through the Capital Requirements Directive (CAD 3). In the UK, Basel II will be administered and regulated by the FSA. A comprehensive version of Basel II was produced in a single document in June 2006.
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 Current Version of Basel II
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 Basel II at the BIS Web-Site
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