Banking Supervision in Europe: From Basel I to Basel II

Since the beginning of the 80s the Basel Committee on Banking Supervision (the Committee) has been dealing with the creation of a framework to measure capital adequacy on a multinational scale as a guideline for an appropriate capital level of internationally active banks. It was initiated because of an alarmingly low level of capital which was held by the most important banks worldwide. The aim of the Committee was not only to guarantee an appropriate capital level for the banking industry as a contribution to improve the safety and soundness of national and international banking and finance systems. At the same time the framework aimed at eliminating the disadvantages in competition between banks, which resulted from the different capital requirements of different states (see Basel Committee on Banking Supervision 1988, par. 3). The results of the Committee’s work were summarised by the so-called “International Convergence of Capital Measurement and Capital Standards” (also known as “Basel Capital Accord”, “Basel Capital Adequacy Framework”, “Basel Accord”, “1988 Accord”, or in short “Basel I”) in 1988. Basel I became effective as of year-end 1992 and has had a substantial influence on the corresponding European Union’s Directives ever since. This is the reason why the Basel Accord may be seen as a basis for German banking supervisory regulations e.g. principle 1 concerning the capital of institutions.