The Basel Accords are a series of three sequential banking regulation agreements set by the Basel Committee on Bank Supervision (BCBS). The BCBS is an international organization that provides recommendations on banking and financial 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.Basel I was first introduced in 1988 and focused on the regulation of banks’ lending practices. In response to the global recession in the early 1990s, Basel II was enacted in 2004 with stricter rules for bank capital requirements. In 2009, after the global financial crisis, Basel III was put into place with even more stringent guidelines for bank liquidity and funding requirements.The purpose of these accords is to create a more stable banking system by mitigating excessive risks taken by banks. By requiring them to hold more capital reserves against potential losses, banks are less likely to become insolvent during times of economic turmoil or market crashes. This not only protects depositors’ money but also helps maintain confidence in the overall economy.Critics argue that the ever-growing number of regulations under each accord has made it increasingly difficult for smaller banks to compete with larger ones; as a result, consolidation within the industry has accelerated over time. However, most experts agree that overall the Basel Accords have been successful in improving bank stability and preventing another global financial crisis from happening.
