BASEL II: PROBLEMS AND USAGE

On the whole, the supervision system of the financial markets activity
for many years had two multi-directed vectors of development. On the one
hand, financial systems of different countries were very different and, as a
result, the structure of the banking activity’s supervision system differed
significantly, including the content and the character of supervisory bodies’
responsibilities. On the other hand, the functioning of national banking systems
during the last decades has been under considerable influence of integrative
processes. Consequently it led to the necessity to solve the legislative
problems in different countries and the creation of unified common
banking regulation and supervision rules on the global market. It is often
claimed that the striving for the creation of the common capital market is
one of the main reasons for banking legislation unification. It is also an expression
of the tendency in the development of the system of supervision
over financial markets towards unified rules of supervision of banking,
share market and insurance services market activity.
The Committee on Banking Supervision plays a crucial role in the
regulation of the banking activity. The necessity to ensure the stability of
the banking system in the biggest countries of the world as well as the
global banking system led in 1974 to the creation of the Committee on
Banking Supervision by central banks and supervision authorities of the
leading industrial states. The Committee usually meets at the Bank for International
Settlements (BIS), which is situated in Basel, Switzerland. One
of the main tasks of the Basel Committee is harmonization of the world
practice of banking business regulation aimed at overcoming the differences
between national practices, liquidating in such a way the main reason
of regulative arbitrage.
The acceptance of the International Convergence of Capital Measurement
and Capital Standards (1988 Basel Capital Accord), more known as
Basel I, in 1988 by leaders of ten central banks of economically developed
countries became the first step to the harmonization of international banking
regulation. In due course this agreement was endorsed in more than
100 countries of the world. Actually it demonstrates the expediency and the
necessity of using the generally acknowledged institutional limitations for
banking activity regulation and it has really helped increase the stability of
financial and banking system.
The 1988 Basel Accord contained three main postulates: firstly, bank
capital consists of the core capital and supplementary capital; secondly,
banks have to maintain the amount of capital, sufficient to cover the credit
risk; thirdly, at all times the target standard ratio of capital to weighted risk
assets should be set at 8 per cent.
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