Basel Agreement

isjhar . 12 September 2021 . 0 comments

Following the collapse of Lehman Brothers in 2008 and the ensuing financial crisis, BCBS decided to update and strengthen the agreements. The BCBS considered poor governance and risk management, inadequate incentive structures and an over-indebted banking sector to be causes of the collapse. In November 2010, an agreement was reached on the overall organisation of the capital and liquidity reform package. This agreement is now known as Basel III. The Basel Accords are an agreement among the member countries of the Basel Committee on the need and method of strengthening regulation in order to establish and maintain a sound international banking system. The agreements aim to respond to the desire of industrialized countries for a common framework for the supervision of international banks. Moreover, member states and several non-members will want to implement the agreements, even if the Basel Committee has no legal power to enforce its decisions. The particularities of different countries characterize the Committee`s decision not to legislate to enforce the Basel Accords. Rather, the decision to adopt legislation on aspects of the agreements is left to the discretion of the States members of the Committee. The first objective is addressed by a series of general provisions which oblige States to respect the fundamental principles of environmentally sound waste management (Article 4). A series of prohibitions aims to achieve the second objective: hazardous wastes cannot be exported to Antarctica, to a State that is not a party to the Basel Convention or to a party that has banned the import of hazardous wastes (Article 4). However, parties may conclude bilateral or multilateral agreements on hazardous waste management with other contracting parties or with non-contracting parties, provided that these agreements are not “less environmentally friendly” than the Basel Convention (Article 11). In all cases where, in principle, transboundary movement is not prohibited, it can only take place if it constitutes an environmentally friendly solution, if the principles of environmentally friendly management and non-discrimination are respected and if they comply with the regulatory system of the Convention.

In September 2010, the Group of Governors and Supervisors (GHOS) announced higher minimum capital requirements for commercial banks, preceded by an agreement reached in July on the overall organisation of the capital and liquidity reform package, now known as “Basel III”. In November 2010, the new capital and liquidity standards were approved at the G20 summit in Seoul and adopted at the Basel Committee meeting in December 2010. As mentioned earlier, the new Basel Capital Accord (Basel II) allows most international banks to determine their regulatory capital on the basis of an internal rating system (Basel Committee on Banking Supervision, 2001). As a result, a large portion of these banks will have ratings and default probabilities for all loans and bonds in their loan portfolio. Therefore, Chapters 2 and 3 Chapters 2Chapter 3 of this book will be devoted to the new Basel Capital Agreement, credit rating agencies and their methods, as well as an overview of the rating techniques for inferring a rating. . . .