What is the Basel Committee on Banking Supervision?
The Basel Committee on Banking Supervision (BCBS) is an international committee formed to develop banking regulatory standards. As of 2022, it is composed of central banks and other banking regulatory authorities from 28 jurisdictions and has 45 members.
Key points to remember
- The Basel Committee is made up of central banks from 28 jurisdictions.
- The Basel Committee on Banking Supervision has 45 members.
- The BCBS includes influential policy recommendations known as the Basel Accords.
Understanding the Basel Committee on Banking Supervision
The Basel Committee on Banking Supervision was formed in 1974 by central bankers from the G10 countries, who at the time were working to build new international financial structures to replace the recently collapsed Bretton Woods system. The seat of the committee is located at the offices of the Bank for International Settlements (BIS) in Basel, Switzerland. Member countries include Australia, Argentina, Belgium, Brazil, Canada, China, France, Germany, Hong Kong, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, UK and USA.
The BCBS was created to address the challenges posed by the globalization of financial and banking markets at a time when banking regulation remains largely within the purview of national regulators. The BCBS serves primarily to help national banking and financial market supervisors adopt a more unified and globalized approach to solving regulatory issues.
Formed without a founding treaty, the BCBS is not a multilateral organization. Instead, the Basel Committee on Banking Supervision seeks to provide a forum in which banking regulators and supervisors can cooperate to improve the quality of banking supervision around the world and improve understanding of important issues in the field of banking supervision.
Basel Accords
The BCBS has developed a series of highly influential policy recommendations known as the Basel Accords. These are non-binding and need to be adopted by national policy makers to be enforced, but have generally formed the basis of bank decisions. capital requirements in the countries represented by the committee and beyond.
The first Basel Accords, or Basel I, were finalized in 1988 and implemented in the G10 countries, at least to some extent, in 1992. They developed methodologies to assess the credit risk of banks on the risk-weighted asset base and have published suggested minimum capital requirements. to maintain the solvency of banks in times of financial crisis. Basel I was followed by Basel II in 2004, which was being implemented at the time of the 2008 financial crisis.
Basel III attempted to correct miscalculations of risk that would have contributed to the crisis by forcing banks to hold higher percentages of their assets in more liquid forms and to fund themselves using more equity rather than debt. It was originally agreed in 2011 and was to be implemented by 2015 but, as of December 2017, negotiations were still ongoing on a few contentious issues. One is the extent to which banks’ own risk assessments of assets may differ from those of regulators; France and Germany would prefer a lower “production floor”, which would tolerate greater discrepancies between risk assessment by banks and regulators. The United States wants the floor to be higher.