The Influence of Basel on the French Banking Sector - Thesis Example

The bank is required to maintain a capital (Tier 1 and 2) that is equal to a minimum of 8% of “risk-weighted assets”. For example, a bank with “risk-weighted assets” worth $100 million will have to maintain a minimum capital of $ 8 million. Basel II is a group of banking regulations put together by the Basel Committee to see that banks are supervised. These policies have international coverage and therefore regulate banking and finance internationally. It integrates the capital standards of Basel with the regulations at the national level.

This is made possible by setting the minimum required capital of institutions of finance with the goal of ensuring the liquidity of the institutions. Basel II is the 2nd bank supervision recommendation of the Basel Committee. Contrary to Basel I, which focused on the risk associated with credits, Basel II focuses on the capital that the financial institutions have to put aside. The main aim of setting aside this capital is to see to it that risk associated with lending and investing practices are reduced2.

These are measures in the comprehensive form designed by the Basel Committee to improve regulation, risk management, and supervision within the financial and banking sector. The first version (Basel III) was published in late period of 2009 giving a period of 3 years to the banks to meet all the requirements stated. So as to see that the credit crisis is addressed, banks are directed to “maintain proper leverage ratios” and meet specified capital requirements. Basel III is a product of Basel I and Basel II with the aim of improving the ability of banking sectors in dealing with economic and financial stress.

Other goals of Basil III are to foster transparency in banks and improve the level of risk management. Basil III's focus is to develop the resilience level of individual banks so as to reduce the negative impacts of risks3. The year 2005 was marked by the introduction of Basel II.