Basel Committee on Banking Supervision (BCBS) - Financial definition
Financial acronyms
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Concise definition of the term Basel Committee on Banking Supervision
The Basel Committee on Banking Supervision, generally only known as the Basel Committee, is a forum in which representatives from central banks and regulatory authorities of the member countries work out coordinated rules for banking supervision.
Comprehensive definition of the term Basel Committee on Banking Supervision
Origin of the Basel Committee
The Basel Committee was created in 1974 by the directors of the central banks of the G10 nations, plus those from Luxembourg and Spain.
The creation was prompted by a severe incident, which had been provoked by the liquidation of Herstatt Bank from Germany by supervisors a couple of
months earlier. The liquidation took place during the day, around 4:30h PM Frankfurt time. At that time, the Herstatt Bank had already received
funds in Deutsche Mark from currency transactions but, due to timezone differences, had not yet paid the counter value in US Dollars.
The non-payment caused a panic in the markets, during which all market participants stopped outgoing payments, which brought the market to a halt.
The Committee which was constituted a couple of months later initially was named the Cooke-Committee after
the Director of the Bank of England at the time, Peter Cooke. It is also him who has given his name to the Cooke ratio, which is the central
piece of the first Basel Accords.
Composition of the Basel Committee
In September 2017, the Basel Committee counted 27 member countries, which are incorporated by high-ranking representatives:
Argentina, Australia, Belgium, Brasil, Canada, China, European Union, France, Germany, Great Britain, Hong Kong, India, Indonesia, Italia, Japan, Korea, Luxembourg, Mexiko, Netherlands, Russia, Saudi Arabia, Singapore , South Africa, Spain, Sweden, Switzerland, Turkey, United States of America.
Assignments
The main tasks of the Basel Committee are:
- Strengthening of the security and reliability of the financial system
- Elaboration of regulatory minimum standards
- Dissemination and promotion of best practices in business and supervision
- Promotion of international collaboration in the area of banking supervision
The Basel Committee has no legal authority over participants in financial markets, but rather authors guidelines and recommendations. It is the
task of each country's legislators to transcribe these into national law and to monitor its application.
Last but not least, the Committee plays an important role as an informal forum in which information relating to supervision and regulation in the
banking and financial sectors are being exchanged.
The best-known works of the Committee are undoubtedly the Basel Accords:
- Basel 1 - The Cooke ratio (1988)
- Basel 2 - The risk approach (2004)
- Basel 3 - The tightening of capital requirements (2010)