Bank Regulation

Basel I
In 1988 the Basel Committee set a 'standardized methodology to calculate the number of RBC that a bank must be met.
Accord 1 only mengcover Credit Risk and the relationship between risk and capital. In the Basel I set the target capital ratio is equal to government debt, bank debt, corporate debt and individuals amounting to 8%.

The Market Risk amendment
Bank supervisors in some countries of Basel I want to be more 'risk-sensitive' so that they adapt the calculation of risk is used by some banks manage the risk in the transaction 'dealing' they (the banks need to set their own internal capital) ..
This is done by banks as a result of:
growth of derivatives market
option pricing model that directly connects volatilitas level of income with the price of the instrument being → risk-based pricing
In 1996, Basel Committee introduced a Market Risk amendment. In addition to set simple method to calculate the market risk, Basel Committee recommends bank supervisors to use the method of calculation of risk-based pricing that is using the Value at Risk models (Var).

Basel II
Introduced in 2004 and will be implemented in the year 2006 - 2007.
Key Basel II:
Connecting the capital of a bank directly with the bank's business risk
Capital for market risk is not substantially changed from the Market Risk amendment in 1996.
Banks are encouraged to use a 'model-based approach' to credit risk pricing.
To include operational risks for the first time, and also encourage banks to use a 'model approach'
There are provisions on the 'other risks' in the RBC, but other risks are not dicover by' model approach '

Bank supervisors responsible for the implementation of Basel II in accordance with local laws and regulations. Consistency in implementation it is important to avoid confusion for the reporting of 'home' (country where the bank was established) or 'host' (the state where the branch of the bank to operate).

Comparison of Basel I and Basel II 
Basel I Accord: 
Focus on the single measure 
Simple approach to the risk sensitivity 
Using the 'one-sizes-fits-all approach' to risk and capital. 
Include credit risk and market risk 

Basel II Accord: 
Focus on internal methodologies 
The higher sensitivity of the risk 
Flexible to meet the needs of each bank is different. 
Include credit risk, market risk, operational risk and other risks.