Basel II

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The following summary is referenced from wikipedia, reproduced in accordance with the GNU Free Documentation License.

Basel II is an Accord created by the Basel Committee on Banking Supervision in June 2004, to improve upon the original Basel accord. The Basel Committee on Banking Supervision themselves, are an institute created by Central Bank representatives from the 'Group of Ten' nations. (made up of; Belgium, France, Canada, Italy, Japan, UK, USA and the Netherlands).

The aim of the Basel II Accord, is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face. Each requirement of the law relating to Information Security is broken down further into more specific sub-requirements that can be mapped back to both the Security Principles that drive them and the Design Patterns that satisfy them.

Contents

Legal Outline

Basel II contains three pillars of concepts to achieve greater stability in the finance industry;

Other information is referenced from the Basel II accord. Bank for International Settlements (BIS).

Pillar 1

  • Minimum Capital Requirements
    • The calculation of the total minimum capital requirements for credit, market and operational risk. The capital ratio is calculated using the definition of regulatory capital and risk-weighted assets. The total capital ratio must be no lower than 8%. Tier 2 capital is limited to 100% of Tier 1 capital.

Pillar 2

  • Supervisory Review Process
    • This section discusses the key principles of supervisory review, risk management guidance and supervisory transparency and accountability produced by the Committee with respect to banking risks, including guidance relating to, among other things, the treatment of interest rate risk in the banking book, credit risk (stress testing, definition of default, residual risk, and credit concentration risk), operational risk, enhanced cross-border communication and cooperation, and securitisation.

Pillar 3

  • Market Discipline
    • The rationale for Pillar 3 is sufficiently strong to warrant the introduction of disclosure requirements for banks using the Framework. Supervisors have an array of measures that they can use to require banks to make such disclosures. Some of these disclosures will be qualifying criteria for the use of particular methodologies or the recognition of particular instruments and transactions.


Requirements Outline

Generally speaking, these rules mean that the greater risk to which the bank is exposed, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability.

Information Assets

Information assets relevant to the Basel II Accord should be identified. This will map directly into the Regulatory Requirements portion of the Information Asset Classification.

Documentation

The latest publication of the Basel II accord was released in July 2006. This legal publication is subject to copyright, however is freely available on the internet in pdf format. link

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