Basel ii

Basel Committee on Banking Supervision

International Convergence of Capital Measurement and Capital Standards
A Revised Framework Comprehensive Version
This document is a compilation of the June 2004 Basel II Framework, the elements of the 1988 Accord that were not revised during the Basel II process, the 1996 Amendment to the Capital Accord to Incorporate Market Risks, and the 2005 paper onthe Application of Basel II to Trading Activities and the Treatment of Double Default Effects. No new elements have been introduced in this compilation.

June 2006

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ISBN print: 92-9131-720-9 ISBN web: 92-9197-720-9

Contents
Introduction ...............................................................................................................................1 Structure of thisdocument........................................................................................................6 Part 1: Scope of Application .....................................................................................................7 I. II. III. IV. V. VI. Introduction......................................................................................................................7Banking, securities and other financial subsidiaries ........................................................7 Significant minority investments in banking, securities and other financial entities.........8 Insurance entities ............................................................................................................8 Significant investments in commercial entities................................................................9 Deduction of investments pursuant to this part .............................................................10

Part 2: The First Pillar – Minimum Capital Requirements.......................................................12 I. Calculation of minimum capital requirements................................................................12 A. B. C.Ia. A. B. Regulatory capital ................................................................................................12 Risk-weighted assets ...........................................................................................12 Transitional arrangements ...................................................................................13 Core capital (basic equity or Tier 1).....................................................................14 Supplementary capital (Tier 2) .............................................................................14 1. 2. 3. 4. 5. C. D. II. A. Undisclosed reserves..................................................................................14 Revaluation reserves..................................................................................15 General provisions/general loan-loss reserves...........................................15 Hybrid debt capital instruments...................................................................16 Subordinated term debt ..............................................................................16

The constituents ofcapital.............................................................................................14

Short-term subordinated debt covering market risk (Tier 3).................................16 Deductions from capital........................................................................................17 Individual claims...................................................................................................19 1. 2. 3. 4. 5. 6. 7. 8. Claims on...