How does Basel II differ from the 1988 Basel Capital Accord?
The Basel II Framework is more reflective of the underlying risks in banking and provides stronger incentives for improved risk management. It builds on the 1988 Accord’s basic structure for setting capital requirements and improves the capital framework’s sensitivity to the risks that banks actually face. This will be achieved in part by aligning capital requirements more closely to the risk of credit loss and by introducing a new capital charge for exposures to the risk of loss caused by operational failures. The Basel Committee, however, intends to maintain broadly the aggregate level of minimum capital requirements, while providing incentives to adopt the more advanced risk-sensitive approaches of the revised Framework. Basel II combines these minimum capital requirements with supervisory review and market discipline to encourage improvements in risk management. What is the goal for the Basel II Framework and how will it be accomplished? The overarching goal for the Basel II Framew
