The three BASEL Accords is a set of outlined agreements by Basel Committee on Bank Supervision (BCBS) and approved by the G20 members,that gives guidelines on banking regulations in relation to three major elements; operational risk, capital risk and the market risk1.

History

BASEL Accord was first developed in 1988 and referred to as Basel I. It concentrated on the capital adequacy risk which it proposed a weighted risk figure equal to or less than 8%.BASEL II, which is the second accord was to be completely implemented by 20152. This accord functions on a three pillar mechanism; minimum capital requirements, market discipline and supervisory review. BASEL III has proposed to be fully implemented by 2019 while the first release of this model was late 2009.

Purpose.

The purpose of the BASELaccord is to ensure that financial institutions such as banks have in their possession enough ready capital at any one time to both attend to financial obligationsand any negative-influencing emergencies3. To simply improve regulation, supervision and risk management in a dynamic market.BASEL III has two major objectives which are to strengthen global capital as well as liquidity regulations to promote a flexible banking sector and to enhance the ability of the banking sector in absorbing shocks emanating from economic and financial stress which would in return cut back on spillover risk from the financial sector to the entire real economy4.

Difficulties, success, issues

Implementation difficultiesfor the Basel accord are brought about by the lack of a specificmethod to handle a large risk portfolio present in the banking sector and the requirement to either integrate or separate business lines in a business5. Success of the implementation has been increased progressively with every level solving targeted areas, the model has enabled align bank’s capital with specific risk profiles. An improved capital quality in the financial

1 Alexander, G. J. (2013). A comparison of the original and revised Basel market risk frameworks for regulating bank capital. Journal of Economic Behavior & Organization, 249.

2 Alexander, G. J. (2014). Bank regulation and international finance stability: A case against the 2006 Basel framework for controlling tail risk in trading books. Journal of Economic Behavior & Organization, 107 -130.

3Alexander, G. J. (2014). Bank regulation and international finance stability: A case against the 2006 Basel framework for controlling tail risk in trading books. Journal of Economic Behavior & Organization, 107 -1304http://www.kpmg.com/global/en/issuesandinsights/articlespublications/documents/basell-iii-issues-implications.pdf5http://www.kpmg.com/global/en/issuesandinsights/articlespublications/documents/basell-iii-issues-implications.pdf