The Basel II Accords are a set of international regulations issued by the Basel Committee on Banking Supervision (BCBS) in 2004. The Accords are intended to promote the soundness and stability of the global banking system by establishing minimum capital adequacy standards and strengthening risk management practices.

The Basel II framework consists of three pillars:

1. Minimum Capital Requirements: The first pillar establishes minimum capital requirements based on the risk-weighted assets (RWAs) of the institution. Banks are required to hold a minimum of 8% capital against their RWAs, with higher capital requirements for more risky assets.

2. Supervisory Review: The second pillar requires banks to undergo a regular supervisory review of their risk management practices, internal controls, and capital adequacy. Supervisors are required to assess the adequacy of the bank’s capital based on its risk profile, and to require remedial action if necessary.

3. Market Discipline: The third pillar aims to promote market discipline by requiring banks to disclose more information about their risk management practices and capital adequacy. This is intended to enable investors and other stakeholders to make informed decisions about the bank’s risk profile and financial health.

The Basel II framework is intended to be more risk-sensitive and flexible than the original Basel I Accords, which relied on a standardized approach to capital requirements. However, the Accords have been criticized for being too complex and burdensome, and for contributing to pro-cyclicality in the banking system. In response, the Basel Committee has issued further revisions to the framework, including the Basel III Accords in 2010 and 2021, which aim to address these issues and further strengthen the resilience of the global banking system.