A new capital adequacy framework

June 1999

The Basel Committee on Banking Supervision (the Committee) has decided to introduce a new capital adequacy framework to replace the 1988 Accord (International Convergence of Capital Measurement and Capital Standards, July 1988) The Committee seeks views on its proposed approaches and on its plans for future work.

This new capital framework consists of three pillars: minimum capital requirements, a supervisory review process, and effective use of market discipline. With regard to minimum capital requirements, the Committee recognises that a modified version of the existing Accord should remain the "standardised" approach, but that for some sophisticated banks use of internal credit ratings and, at a later stage, portfolio models could contribute to a more accurate assessment of a bank's capital requirement in relation to its particular risk profile. It is also proposed that the Accord's scope of application be extended, so that it fully captures the risks in a banking group.