Basel II And Capital Adequacy

Capital adequacy of Basel II is a minimum of 8% (same as Basel I), because the Committee believed that the target capital ratio of 8% for international banks are still appropriate. Because each bank to calculate capital needs are different, the actual amount will differ from the provisions of the Basel capital I.

The purpose of Basel II is to make a regulation more in line with the risk profile of each bank. 2 Committee has adopted a transition plan to ensure that Basel II will not reduce the capital requirements of a bank or the banking industry too quickly.
1. Adany multiplier to ensure that the target of a minimum capital ratio of 8% to stay awake. 'Scaling factor' will be applied uniformly to all banks using the IRB approach for credit risk or the Advanced Measurement Approach for operational risk. QIS 3 in accordance with these factors will initially set at 106%.
2. Bank supervisors may prohibit a bank to lower the capital, but the decline in bank capital should be done gradually and approved by the bank supervisors from the year 2005 - 2008