The Basel Accords and Financial Crises

Outside the financial sector, few people have heard of the Basel Accords. Yet these international agreements shape many aspects of modern banking, influencing everything from mortgage lending and business finance to the amount of risk banks can take and the capital they must hold against potential losses. In doing so, they play a central role in determining how resilient the global banking system is when financial crises occur.

The Basel Accords are neither international treaties nor laws passed by national parliaments. Instead, they are internationally agreed regulatory standards developed by central banks and financial supervisors. Individual countries then implement these standards through their own banking laws and regulations, making them legally binding for banks operating within their jurisdictions. Over the past four decades, the Basel framework has become the foundation of prudential banking regulation across most of the world.

The history of the Basel Accords is also the history of modern financial crises. Each new generation of rules emerged after major events exposed weaknesses in the previous framework. Basel I responded to the international debt crises of the 1970s and 1980s by introducing common capital standards. Basel II reflected the increasing sophistication of financial markets and banks’ risk-management techniques. Basel III was a…