Basel II

I have become more and more interested in the Basel II accords for accounting standards. And, more specifically, how new accords under a Basel III summit could change the accounting rules for capital requirements and mark to market accounting. This will have major implications for how companies report risk, debt and leverage for their financial positions.

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In practice, Basel II attempts to accomplish this by setting up rigorous risk and capital management requirements designed to ensure that a bank holds capital reserves appropriate to the risk the bank exposes itself to through its lending and investment practices. Generally speaking, these rules mean that the greater risk to which the bank is exposed, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability.