Basel II Readiness

Basel II Readiness

The New Capital Adequacy Framework (Basel II) proposes a significant refinement of regulatory and supervisory practice and encourages improved disclosure and market discipline, increased attention to risk management practices in supervisory agencies and financial institutions.

While a large number of countries have expressed an interest in adopting Basel II, the standard attempts to incorporate many aspects of advances in risk management constitute a challenge for banking supervision in many countries (e.g. setting appropriate levels of capital requirements, addressing the procyclicality effect and impact on portfolio structures). A strong financial sector infrastructure, including effective risk-based banking supervision, is critical for financial stability and development and is one of the necessary preconditions for implementation of Basel II.

World Bank Response: The World Bank, jointly with the IMF, provides expertise on various aspects of risk-based supervisory frameworks and approach to surveillance of financial sectors under the changing environment in countries which decided to implement Basel II.

With regard to “pre-Basel II” technical assistance in strengthening supervisory systems, the Banks and the Fund – in accordance with their areas of expertise – collaborate closely in supporting member countries in the following areas:
• Improving supervision consistent with the Basel Core Principles, Basel I, and risk-based supervision;
• Training of supervisory staff;
• Strengthening banking infrastructure and legal framework;
• Providing assistance in enhancement of payment systems;
• Advising on insolvency frameworks.