The Basel Agreements are an agreement between the Member States of the Basel Committee on the need and method of strengthening regulation in order to achieve and maintain a strong international banking system. The agreements are intended to respond to the desire of industrialized countries to establish a common framework for the supervision of international banks. Moreover, Member States and several non-members will want to implement the agreements, even if the Basel Committee does not have the legal authority to implement its decisions. The peculiarities of different countries inform the Committee`s decision not to legislate on the application of the Basel agreements. The decision to legislate on aspects of the agreements is left to the discretion of the Committee`s Member States. Following the collapse of Lehman Brothers in 2008 and the financial crisis that followed, BCBS decided to update and strengthen the agreements. The reasons cited by BCBS for the collapse were poor governance and risk management, inadequate incentive structures and an over-indebted banking sector. In November 2010, an agreement was reached on the comprehensive approach to capital and liquidity reform. This agreement is now known as Basel III. In September 2010, the Group of Governors and Supervisors (GHOS) announced higher capital standards for commercial banks, which were agreed in July on the overall design of the Capital and Liquidity Reform Package, now known as Basel III.
In November 2010, the new capital and liquidity standards were approved at the G20 Heads of State and Government Summit in Seoul and adopted at the Basel Committee meeting in December 2010. Basel III identified the main reasons for the financial crisis. These include poor corporate governance and liquidity management, over-indebted capital structures due to the absence of regulatory restrictions and poorly targeted incentives in Basel I and II. The global financial crisis of 2008-2009The global financial crisis of 2008-2009 refers to the massive financial crisis that the world experienced from 2008 to 2009. The financial crisis has wreaked havoc on individuals and institutions around the world, with millions of Americans severely affected. Financial institutions began to decline, many were absorbed by larger units, and the U.S. government was forced to propose bailouts that highlighted weaknesses in the international financial system and led to the creation of Basel III. The Basel III Regulations were created in November 2010 in the wake of the financial crisis; However, they still need to be implemented. Implementation has been constantly delayed in recent years and is expected to take place in January 2022. Committee members and several non-members agreed to adopt the new rules, but within different time frames.
One of the challenges faced by supervisory authorities around the world under Basel II was the need to allow certain approaches to risk measurement in several jurisdictions. Although this was not a new approach for the supervisory community – the 1996 market risk change involved a similar requirement – Basel II broadened the scope of these authorities and called for even closer cooperation between domestic supervisors and foster caretakers.