Essay: A Brief Overview of the Basel Accord and the Reasons behind its Formulation

Sample Essay

The Basel Accords I and II have had a huge impact since their formulation on the way banking is conducted today. They were formed and initiated in 1988 and 2004 respectively. These accords have set new standards for banking and finance on a global scale by setting new standards of performance to be met by all countries who are members of the Basel Group (Balin, 2008). Despite the efficiency and generally improved performance resulting from the Basel Accords, they have been subjected to criticism due to their highly technical nature which has caused them to be misunderstood by many parties. This paper aims to supply a brief history of the accords, their evolution, the reasons for their implementation and the roles of these accords.

A total of 11 countries comprise the Basel Committee, which was formed to standardize rules related to banking after the collapse of Herstatt Bank due to settlement risk issues. The goal of the committee is to “…extend regulatory coverage, promote adequate banking supervision, and ensure that no foreign banking establishment can escape supervision” (Basle Committee on Banking Supervision, 1988).

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