Basel II refers to the new capital requirements for banks formulated by the Basel Committee on Banking Supervision in 2004. These became mandatory for all credit institutions in the EU as of 1 January 2008 and replaced the previous capital adequacy rules from 1988, known as Basel I. The Basel II rules introduced a new method for determining the capital requirements of banks.
The Basel II framework introduced a new method for determining banks' capital requirements. It took more precise account of banks' credit risk and differentiated risk weights based on credit ratings and other factors.
Basel II contributed to the creation of a common framework for the regulation of banks and also had an impact on banks' lending practices. The introduction of the new capital requirements led some banks to adjust their lending practices to meet the higher capital requirements.
Basel II was an important step in the regulation and supervision of the banking sector worldwide and helped to strengthen the stability of the financial system. It was supplemented and further developed by Basel III in the following years.
