What is Basel Committee on Banking Supervision?

Subject: Economy

Context:

The Discussion Paper on “Governance in Commercial Banks” released by the RBI is a high-quality document that contains principles drawn from those released by the Basel Committee on Banking Supervision (BCBS) in 2015.

Concept:

• The Basel Committee – initially named the Committee on Banking Regulations and Supervisory Practices was established by the central bank Governors of the Group of Ten countries at the end of 1974 in the aftermath of serious disturbances in international currency and banking markets
• The BCBS is the primary global standard setter for the prudential regulation of banks and provides a forum for cooperation on banking supervisory matters.
• Its mandate is to strengthen the regulation, supervision and practices of banks worldwide with the purpose of enhancing financial stability.
• The BCBS does not possess any formal supranational authority.
• Its decisions do not have legal force. Rather, the BCBS relies on its members’ commitments
• BCBS members include organizations with direct banking supervisory authority and central banks.

Basel Accords

• The Basel Accords are three series of banking regulations (Basel I, II, and III) set by the Basel Committee on Bank Supervision (BCBS).
• The committee provides recommendations on banking regulations, specifically, concerning capital risk, market risk, and operational risk. The accords ensure that financial institutions have enough capital on account to absorb unexpected losses.
• In 2010, Basel III guidelines were concluded. These guidelines were introduced in response to the financial crisis of 2008. The guidelines aim to promote a more resilient banking system by focusing on four vital banking parameters viz. capital, leverage, funding and liquidity.