Basel Framework

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Basel Compliance FAQ

What is Basel?
Basel is a recommendation by the Basel Committee of Banking Supervision and was created to promote greater convergence in the way banking govern the capital adequacy of banks across national borders.

To which financial institutions does Basel compliance apply?
Commercial banks
Savings banks
Credit Institutions
Investment firms
Management companies for UCITs

Why is Basel II replacing Basel I?
There has been a need for a more risk sensitive way to measure capital requirements. Basel II provides for a broader range of approaches of measuring risk and is therefore ensuring that the regulatory capital is reflecting the real underlying risk that a bank is exposed to. Basel II is a 3-pillar concept with each pillar targeting different types of risk.

What are the three pillars for Basel II compliance?
Pillar I: Minimum Capital Requirements
Pillar II: Supervisory Review Process
Pillar III: Market Discipline Requirements

When does Basel III go into effect?
Basel III effects Core Tier 1 capital ratios. Right now the ratio is 2%. Starting January 1, 2013, this ratio increases to 3.5% and then further increases 0.5% each year until 2017.