In 1988, the Basel Committee on Banking Supervision introduced the first global supervisory standards for regulating the capital adequacy of internationally active banks. Periodic reviews of these standards were undertaken to keep pace with financial innovation, risk management improvements and market developments in the past two decades.

However, in 1998, the supervisory community, with the support of industry, decided that a radical review of the rules should take place given the increasing complexity of both financial products and risk management techniques. In June 1999, the Basel Committee proposed the creation of new standards composed of three pillars: minimum capital requirements, supervisory review, and market discipline through enhanced disclosure.

In June 2004 the Basel Committee published the new framework entitled Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework. The framework covers credit, market and operational risks and provides a range of options of varying complexity for banks. In countries following the Basel Committee's timetable, the simple Standardized approaches will come into effect on 1 January 2007, and on 1 January 2008 the Advanced approaches will be implemented.

The Basel II advanced approaches integrate the complex risk management techniques used by banks into the supervisory framework for the first time. This change in approach represents a challenge to both industry and the supervisory community. Achieving a globally consistent framework for internationally active banks that are supervised by a number of national authorities is particularly difficult and necessitates a strong dialogue between industry and supervisors.

Given the complexity of the proposals, the Institute created a Steering Committee on Regulatory Capital, composed of chief executive and chief risk officers, to guide working group technical efforts. The Steering Committee oversees the work of the Home-Host Implementation Issues Task Force, the Working Group on Capital Adequacy, which focuses on credit risk, the Working Group on Operational Risk and the Working Group on Market Risk. The Institute's regional CRO Fora also look at the regional issues arising from implementation of the Accord in non-G10 countries.