Basel Committee on Banking Supervision
One of the key international groupings for banking regulators is the Basel Committee on Banking Supervision. The Committee aims to improve the quality of banking supervision worldwide through fostering regular co-operation on banking supervisory matters. The Committee also formulates broad supervisory standards and guidelines for regulators, that the Committee hopes will be adopted around the world; its recommendations, however, do not carry legal force.
The Committee's members come from Australia, Belgium, Brazil, Canada, China, France, Germany, India, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Spain, Sweden, Switzerland, the United Kingdom and the United States.
An important aspect of the Basel Committee’s work has been the formulation of a capital adequacy framework for banks. In 2004, it released the main features of the Basel II Capital Framework, which it developed to improve the flexibility and risk sensitivity of the previous Framework (Basel I), which was introduced in 1988. In updating the measurement of capital adequacy of internationally active banks, Basel II builds in rewards for stronger and more accurate risk assessment ("Pillar 1"), but also places renewed emphasis on the importance of supervisory review ("Pillar 2") and market discipline ("Pillar 3") in contributing to improved financial system soundness. The Basel Committee continues to refine the Basel II Capital Framework to ensure its ongoing effectiveness.
The Basel Committee has also endeavoured to promote the adoption of sound supervisory practices worldwide. Accordingly, in 1997 the Basel Committee – in collaboration with many non-G10 supervisory authorities – developed a set of Core Principles for Effective Banking Supervision. The Principles relate to: the preconditions for effective banking supervision; the licensing of banks; the setting of prudential regulations; methods of ongoing banking supervision; the quality of information required from regulated entities; the types of formal powers required by supervisors; and the mechanisms that must be in place to deal with cross-border banking issues. The Principles are viewed by the Basel Committee to be minimum requirements for effective supervision, and in many cases may need to be supplemented by other measures designed to address particular conditions and risks in the financial systems of individual countries. The Core Principles were updated in 2006 to ensure their continued relevance.
