Basler abkommen

What Are Basler Abkommen?

The Basler Abkommen, commonly known as the Basel Accords, are a series of international agreements issued by the Basel Committee on Banking Supervision (BCBS) that provide recommendations on banking supervision for the regulation of financial institutions. These accords establish global standards for capital requirements, risk management, and other regulatory measures aimed at enhancing global financial stability. The Basler Abkommen are designed to ensure that banks hold adequate capital to absorb unexpected losses, thereby reducing the likelihood of bank failures and mitigating systemic risk within the international financial system.

History and Origin

The genesis of the Basler Abkommen can be traced back to the turbulent financial markets of the 1970s. The collapse of Herstatt Bank in Germany in 1974, which caused significant disruption across international financial markets, highlighted the urgent need for cross-border cooperation in banking supervision. In response to this event, the central bank governors of the Group of Ten (G10) countries established the Basel Committee on Banking Supervision (BCBS) later that year, under the auspices of the Bank for International Settlements (BIS) in Basel, Switzerland.

The Committee's initial focus was to improve supervisory knowledge and the quality of banking supervision globally. This led to the creation of the first accord, Basel I, published in 1988. Basel I primarily focused on standardizing credit risk capital requirements for internationally active banks, mandating that they hold a minimum of 8% capital against their risk-weighted assets,⁷. Subsequent accords, Basel II (2004) and Basel III (2010), were developed to address evolving financial risks and systemic vulnerabilities, particularly in the wake of the 2007-2008 global financial crisis,. The official history of the Basel Committee and its foundational efforts are detailed by the Bank for International Settlements.⁶

Key Takeaways

• The Basler Abkommen (Basel Accords) are international banking regulations developed by the Basel Committee on Banking Supervision (BCBS).
• Their primary goal is to enhance global financial stability by requiring banks to maintain adequate capital to absorb losses.
• Basel I (1988) introduced an 8% minimum capital requirement for credit risk based on risk-weighted assets.
• Basel II (2004) expanded on Basel I by introducing three pillars: minimum capital requirements, supervisory review, and market discipline, encompassing market risk and operational risk.
• Basel III (2010) further strengthened capital and liquidity standards in response to the 2008 financial crisis, introducing concepts like the leverage ratio and liquidity risk ratios.

Formula and Calculation

The Basler Abkommen, particularly Basel I, introduced a foundational formula for calculating minimum capital requirements based on risk-weighted assets (RWA). While subsequent accords like Basel II and Basel III introduced more complex methodologies and expanded risk categories, the core concept remains.

Under Basel I, the general formula for the Capital Adequacy Ratio (CAR) was:

Where:

• Tier 1 Capital represents a bank's core capital, primarily consisting of shareholders' equity and disclosed reserves. This is considered the highest quality of regulatory capital.
• Tier 2 Capital includes supplementary capital, such as revaluation reserves, undisclosed reserves, hybrid capital instruments, and subordinated debt.
• Risk-Weighted Assets (RWA) are a bank's assets weighted according to their associated credit risk. For instance, cash might have a 0% risk weight, while corporate loans could have a 100% risk weight.

This ratio ensures that a bank's capital is sufficient to cover a certain percentage of its risk-weighted exposures. Basel III further refined the definition of Tier 1 capital, particularly Common Equity Tier 1 (CET1), and introduced additional buffers.

Interpreting the Basler Abkommen

The Basler Abkommen are interpreted as a framework for sound international banking practices. A bank's adherence to the Basler Abkommen's standards indicates its financial soundness and resilience to adverse economic conditions. For regulators, the accords provide a common language and set of metrics to assess the health of banks across different jurisdictions.

For instance, a bank maintaining a capital adequacy ratio significantly above the minimum required by the Basler Abkommen typically demonstrates strong financial health and a robust buffer against potential losses. Conversely, a bank barely meeting the minimum threshold might be viewed as having less capacity to absorb unexpected shocks. The framework also emphasizes qualitative aspects through its "Pillar 2" (Supervisory Review Process), which encourages banks and supervisors to assess all material risks, not just those captured by the minimum capital requirements.

Hypothetical Example

Consider "Alpha Bank," an internationally active bank subject to the Basler Abkommen. At the end of a fiscal year, Alpha Bank reports the following:

• Tier 1 Capital: $100 billion
• Tier 2 Capital: $20 billion
• Total Risk-Weighted Assets (RWA): $1,250 billion

To calculate Alpha Bank's Capital Adequacy Ratio (CAR) under the Basel I framework:

1. Calculate Total Capital:
   Total Capital = Tier 1 Capital + Tier 2 Capital
   Total Capital = $100 billion + $20 billion = $120 billion

2. Calculate CAR:
   CAR = (Total Capital / RWA) * 100%
   CAR = ($120 billion / $1,250 billion) * 100%
   CAR = 0.096 * 100% = 9.6%

In this example, Alpha Bank's CAR of 9.6% exceeds the 8% minimum requirement set by Basel I, indicating that it holds sufficient regulatory capital relative to its risk-weighted assets. This suggests that Alpha Bank is adequately capitalized according to the general principles established by the Basler Abkommen.

Practical Applications

The Basler Abkommen have far-reaching practical applications across the global financial landscape:

• Regulatory Frameworks: They serve as the foundational blueprint for national banking regulations worldwide. Many countries incorporate the Basler Abkommen's principles into their domestic laws and regulations, influencing how banks operate and are supervised. The Federal Reserve Board, for example, provides detailed documents on the U.S. implementation of the Basel Accords.⁵
• Risk Management Practices: Banks globally have integrated the accords' requirements into their internal risk management systems, particularly for assessing credit risk, market risk, and operational risk.
• Capital Allocation: The risk-weighted asset approach directly impacts how banks allocate capital across different business lines and asset classes. Assets with higher risk weights require more capital, influencing lending decisions and investment strategies.
• Supervisory Oversight: Regulators utilize the framework to conduct stress testing and conduct supervisory reviews (Pillar 2) to ensure banks' internal capital adequacy assessments are robust and that they manage risks effectively.
• Market Discipline: Pillar 3 of the Basel Accords promotes market discipline through enhanced public disclosures by banks. This transparency allows investors and other market participants to better assess a bank's risk profile and capital adequacy, fostering more informed investment decisions. The Bank for International Settlements publishes the complete "Basel Framework" outlining these standards.
• Macroprudential Policy: Basel III introduced elements of macroprudential policy, such as counter-cyclical capital buffers, designed to prevent excessive credit growth during boom times and ensure banks have sufficient capital during downturns, thereby contributing to broader financial stability.

Limitations and Criticisms

Despite their widespread adoption and positive impact on financial stability, the Basler Abkommen have faced several limitations and criticisms:

• Complexity: Each iteration of the Basler Abkommen, especially Basel II and III, has significantly increased in complexity. This intricate nature can make implementation challenging for banks and oversight difficult for regulators, potentially leading to regulatory arbitrage or unintended consequences.
• "One-Size-Fits-All" Approach: Critics argue that a uniform global standard may not adequately address the diverse structures and risk profiles of banks in different jurisdictions, particularly for smaller, non-internationally active banks,⁴.
• Pro-cyclicality: Some argue that the risk-weighted asset approach can be pro-cyclical, meaning it might exacerbate economic downturns. During a recession, asset values may fall, increasing risk weights and thus requiring banks to hold more capital. This could reduce lending precisely when the economy needs it most.
• Over-reliance on Internal Models: Basel II's emphasis on banks' internal models for calculating risk-weighted assets drew criticism, especially after the 2008 financial crisis, as these models sometimes underestimated true risks³. Basel III attempted to address this with capital floors and more standardized approaches.
• Risk Migration: Research suggests that stricter capital requirements for banks under Basel III may lead to a migration of risk to less regulated parts of the financial system, such as shadow banking entities²,¹. This could create new vulnerabilities outside the traditional banking sector.
• Cost of Compliance: Implementing the Basler Abkommen requires substantial investment in IT systems, data infrastructure, and skilled personnel, which can be particularly burdensome for smaller financial institutions.

Basler Abkommen vs. Capital Requirements Directive (CRD)

While closely related, the Basler Abkommen and the Capital Requirements Directive (CRD) represent different levels of legal authority and scope.

The Basler Abkommen (Basel Accords) are non-binding recommendations and international standards developed by the Basel Committee on Banking Supervision (BCBS), a forum for international cooperation on banking supervision. They provide a framework and guidelines that member countries are expected to implement into their national laws. The BCBS does not have legal enforcement powers; compliance relies on the commitment of member countries.

In contrast, the Capital Requirements Directive (CRD) is a legally binding piece of legislation within the European Union (EU) that implements the Basel Accords into EU law. The CRD (and its accompanying Capital Requirements Regulation, CRR) translates the broad principles of the Basler Abkommen into specific, legally enforceable rules that all banks and investment firms within the EU must follow. While the CRD largely aligns with the Basel framework, it may include specific provisions or adaptations to suit the particularities of the European financial market. Therefore, the Basler Abkommen provide the global blueprint, while the CRD is a direct legal enactment of that blueprint within the EU.

FAQs

What is the purpose of the Basler Abkommen?

The primary purpose of the Basler Abkommen is to strengthen the regulation, supervision, and risk management of the global banking sector. They aim to enhance financial stability by ensuring banks hold sufficient capital to absorb losses, thus reducing the risk of bank failures and protecting depositors and the wider economy.

Are the Basler Abkommen legally binding?

No, the Basler Abkommen themselves are not legally binding international treaties. They are recommendations and standards issued by the Basel Committee on Banking Supervision. It is up to individual countries and jurisdictions to transpose these recommendations into their national laws and regulations, making them legally binding within those territories.

How many Basel Accords are there?

There have been three main iterations of the Basel Accords: Basel I (1988), Basel II (2004), and Basel III (2010 onwards). Each successive accord builds upon the previous one, addressing new risks and strengthening regulatory standards, particularly in response to financial crises. There are ongoing reforms often referred to as "Basel III Endgame" or "Basel IV."

What are the "Pillars" of Basel II and III?

Basel II and III introduced a "Three-Pillar" approach:

• Pillar 1: Minimum Capital Requirements – Specifies how capital should be calculated based on credit risk, market risk, and operational risk.
• Pillar 2: Supervisory Review Process – Encourages banks to assess their capital adequacy relative to their risk profile and allows supervisors to challenge these assessments and require additional capital.
• Pillar 3: Market Discipline – Requires banks to disclose key information about their risk exposures, capital, and risk management to the public, fostering transparency and market discipline.