Basel Committee

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Basel Committee's Risk Categories

Basel Committee's Risk Categories


The Basel Committee and the Basel Committee on Banking prudential supervision is an institution created in 1974 by the governors of central banks in the "Group of Ten" (G10), includes central banks and regulators and banking supervisors major industrialized countries (France, Belgium, Canada, Italy, Japan, Luxembourg, Germany, Netherlands, Switzerland, Spain, Sweden, United Kingdom and the United States). The creation of the Committee followed a few months an incident following the liquidation of a German company that had a domino effect on some other banks. The representatives meet at the Bank for International Settlements in Basel to discuss all issues related to the prudential supervision of banking activities. The year of the founding of the Basel Committee coincided with the fall of the German bank Herstatt; this incident had a severe effect on some other banks, and is considered a major financial crisis. The committee was originally called the "Cooke Committee", named Peter Cooke, a director of the Bank of England which was the first to offer its inception and was its first president (Engelmann & Rauhmeier, 2006, 221-224).

The Committee meets four times a year and is currently composed of representatives of central banks and supervisory authorities of 13 countries: Germany, Belgium, Canada, Spain, USA, France, Italy, Japan, Luxembourg, Netherlands, United Kingdom, Sweden and Switzerland. The purpose of this committee is to foster cooperation and promote international harmonization in terms of bank prudential supervision. However, note that the Basel Committee has no authority, and its findings have no legal force. The Basel Committee has published a series of documents since 1975 related to prudential banking. The first paper was published in 1975, called the Basel Concordat. In 1983, the Basel Concordat was amended to introduce the principle of prudential supervision of banking consolidation. In 1988, the Basel Committee has published a new document that is commonly known as the Basel Capital Accord. The 1988 Accord sets minimum capital requirements based on risk for banks operating internationally. From 1988, this framework was adopted gradually not only in member countries but also other countries where banks active internationally (Chorafas, 2004, 77).

The Basel Committee's Tasks

One of the most famous of the bank is to allocate and make available funds. This business is a risk: non compliance or failure of the borrower. To cope, the bankers have developed and improved tools to assess, measure, control and monitor credit risk. For banks, the granting of credit is an asset, a job that is accompanied by a corresponding liability: a resource that is either equity or debt in general. The higher proportion of equity relative to debt, the higher the body, is solid and provides safety guarantees (BCBS, 2001, 45).

In case of failure of a borrower, the bank suffers a loss, draws on its reserves thereby reducing its equity. It is the awareness of the risk that motivated the creation of international bodies. The Basel Committee has been created by the central bank governors of the G10 in ...
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