Property Finance

Chapter 8Basel Accords and Effects on Real Estate Financing

The Basel Accords on Capital Requirements are intended to ensure stability within the banking system, which necessarily has a knock-on effect on the stability of the economic system, stipulating, inter alia, the capital requirements for banks in relation to the risk taken on as part of their ordinary business.

The general principle on which these accords are based is that the risk taken on by a bank must be adequately backed up by its supervisory capital, which may be defined in summary terms as the capital which the banks must set aside in their balance sheets in order, inter alia, to cover the risks resulting from credit exposure towards their clients. Consequently, the greater the risk involved in operation, the more the bank will have to set aside funds to its supervisory capital, although these provisions may vary depending upon the risk of losses due to debtor default, which must be monitored and updated until the credit facility has been paid back in full.

The Basel Accords on the capital requirements for banks were concluded by the Basel Committee on Banking Supervision, which was established by the governors of the central banks from the G10 countries at the end of 1974 and operates under the auspices of the Bank of International Settlements, an international organization charged with the promotion of cooperation between central banks and other equivalent bodies, with the goal of pursuing monetary and financial ...