CHAPTER 3
Basel II Capital Accord
In this chapter, we review the capital requirements under the recent Basel Capital Accord as set out in its final version of June 2006. We focus on the aspects relevant to operational risk.

THE BASEL COMMITTEE ON BANKING SUPERVISION

The Basel Committee on Banking Supervision (BCBS) is the key player in the financial risk regulation network, setting risk management regulations to financial institutions worldwide. BCBS is a committee of banking supervisory authorities, established in 1975 by the central bank governors of the Group of Ten (G10) countries. Consisting of representatives from 13 countries (Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom, and the United States), it holds regular meetings at the Bank for International Settlements (BIS) in Basel, Switzerland, where its permanent Secretariat is located.
BCBS plays the leading role in establishing risk assessment and management guidelines for banks. The current (2004) Basel Capital Accord targets credit, market, and operational risks. A number of subcommittees have been established to promote consistency in its implementation. Major subcommittees include the following:40
• The Accord Implementation Group (AIG) is aimed at promoting exchange of information on the practical implementation challenges of the Capital Accord and on the strategies they are using to address these issues. The Operational Risk subgroup ...

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