Basal Accords- BASEL-I, BASEL-II, BASEL-III

The Basel Accords are a series of international banking regulations developed by the Basel Committee on Banking Supervision (BCBS) to strengthen regulation, supervision, and risk management within the banking sector. The Central Bank Governors of the G-10 countries formed a committee known as the Basel Committee on Banking Supervision. However, 140 regulators (Central Banks) are now following the prescriptions of the BCBS. These accords aim to enhance financial stability and reduce the risk of banking crises. There are three main Basel Accords: Basel I, Basel II, and Basel III.

BASEL I

BASEL-I came into effect in 1988, but Bangladesh adopted it in 1996, with the aim of strengthening the stability of the banks. Under the BASEL I regulation, banks were required to maintain at least 8% of total credit risk-weighted assets, considering credit risk and market risk but without considering operational risk.

BASEL-II

By considering the weakness of Basel-I, Basel-II came into effect in 2004, similarly Bangladesh Adopted it 2010, with new regulation for the banks to ensure the overall risk management. Basel-II consists of Three Pillars:

§    Pillar-I: Minimum Capital Requirement (MCR) with considering the Credit, Market and Operational risks that is more practical and Comprehensive from a risk management perspective.

§     Pillar-II: Supervisory Review Process that’s mean if central bank found any material risk, then central bank can impose additional capital charge by considering residual risk, reputational risk, concentration risk etc.

L   Pillar-III: It is the Market Disclosure, means any material information must be disclosed to the stakeholders, the public and in the market so that keeping the financial market resilience.

BASEL-III

Basel-III came into effect from 2013 to 2018, and Bangladesh started implementation from 2015 to 2019. This regulation introduced several new concepts, including Capital Requirement, Capital Conservation Buffer, Countercyclical Buffer, Liquidity Ratio, Liquidity Coverage Ratio (LCR), and Net Stable Funding Ratio (NSFR). Basel III consists of three pillars:

Pillar I: Enhanced Minimum Capital and Liquidity Requirements
Pillar II: Enhanced Supervisory Review

Pillar III: Enhanced Risk Disclosure and Market Discipline

According to the BASEL III capital requirements, Bangladesh Bank set the minimum Capital to Risk Weighted Assets Ratio (CRAR) at 10% of total Risk Weighted Assets.