Financial Risk Management

PART OneNavigating Banking Regulation

In the aftermath of the failure of Herstatt Bank in Germany (in 1974), the central bank governors of the G10 established the Basel Committee—now named the Basel Committee on Banking Supervision (BCBS). It is the primary global standard setter for the prudential regulation of banks and provides a forum for regular cooperation on banking supervisory matters.¹ The Committee is headquartered at the Bank for International Settlements (BIS) in Basel, Switzerland. Its main objective is “[…] to enhance financial stability by improving the quality of banking supervision worldwide, and to serve as a forum for regular cooperation between its member countries on banking supervision matters”.²

In this part, we stress what is essential for understanding the risk metrics and methods developed in the second part of the book. Knowing the alpha and omega of banking regulation is one way to develop skills and competencies in the field of banking risk management. We review the main milestones of the successive Basel frameworks, from Basel I to III, explaining how and why they have evolved over time. Finally, we address the regulatory viewpoint on climate‐related financial risks.

NOTES

1. 1. Its 45 members comprise central banks and bank supervisors from 28 jurisdictions.
2. 2. Source: https://www.bis.org/bcbs/history.htm