BASEL Norms

Basel II is the second of the Basel Accords, (now extended and effectively superseded by Basel III), which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. BASEL III is a global regulatory standard on bank capital adequacy, stress testing and market liquidity risk agreed upon by the members of the Basel Committee on Banking Supervision in 2010-11.  The purpose of Basel II, which was initially published in June 2004, 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. Advocates of Basel II believe that such an international standard can help protect the international financial system from the types of problems that might arise should a major bank or a series of banks collapse. The business of a bank is to lend deposits to its customers. The interest earn from the loans is then used to foot for the deposits. While your deposits and interest are safe, the edge faces the risk of losing money on the loans they hold given. Succinctly put, while a bank's assets (loans and investments) are risky and prone to losses, its liabilities (deposits) are convinced. Bank failures are mostly caused by losses on its assets within the form of default by borrowers (credit risk), losses on investments within different securities (market risk) and frauds, systems and process failures (operational risks).