The New Basel Accord has become so complicated that some of the bankers have questioned its practicality. However the Basel committee is bent on making the accord work. The July agreement on some of the major issues is a step in that direction.

When the existing regulations do not make sense in the current environment due to changed economic conditions and when the players have seen a way to get around the rules it is time for the regulators to act. After the South-East Asian crises and the collapse of the major banks in the 1990s the Basel norms which sets the broad rules for the banks and related entities decided to modify the rules that would better suit the changed environment. The process of consultation to develop a consensus for the new framework started in 1999. This would form the basis of the new Accord popularly called the Basel II Accord.

This framework when finalized would replace the 1988 Basel Accord. The 1988 Accord for the first time attempted to remove the dissimilarities in the banking sector. Till then the banks were governed by the rules set by different central banks in their respective countries. This was a major problem especially for international banks, which had to adhere to different regulations in different countries. To remove these dissimilarities and provide a level playing field for the banks the group of 15, most industrialized countries, got together and agreed on some common rules. This was the genesis of the Basel Accord. Over a period of time the regulations were adopted by the central banks of more than 100 countries. The Accord though very popular had to be modified to measure risk more effectively and to build in the flexibility needed to proactively measure risk and prevent banks from landing in turmoil.

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