Basel Capital Framework
To enhance global stability and risk management in the banking industry, in 1988 the Bank for International Settlement’s Basel Committee on Banking Supervision set international minimum capital requirements to underpin credit risk for national regulators and internationally active banks. A major revision of the original Accord, Basel II, was published in 2004 and replaced the original 1988 Capital Accord (Basel I).
Entering the global financial crisis Canada’s banks were well-regulated, well-capitalized and well-managed. This remained true throughout the crisis and remains true today. Canada’s banks are among the most well-capitalized in the world in terms of both the quality and quantity of capital.
But some banks in other countries either failed or had to be bailed out by their governments. As a result, the Basel Committee has introduced Basel III, a package of international reforms to strengthen the regulation, supervision and risk management of the banking sector to help prevent a similar financial crisis in the future. Included in these reforms are measures that would ensure banks have sufficient capital levels to absorb any potential losses in the future and ensure that they have the appropriate liquidity risk management to meet cash flow obligations.
The Basel III requirements will begin to take effect from the beginning of 2013 and will be progressively phased in by 2019. In Canada, the banks’ prudential regulator, the Office of the Superintendent of Financial Institutions (OSFI), will be consulting with banks and will be adapting the Basel III rules into national regulations to meet the 2013 deadline.